When IPO finishes, I predict that Facebook shares will close at $52 – almost a third more on top of what it will be initially offering. I’ll get into those reasons in another post but for now, here’s how to get some Facebook shares along with some tips you might need to know if you are a serious investor.
You can grab a piece of Facebook from many places–a regular trading firm, a stock market savings plan, or a company that specializes in selling single shares of stock. But don’t be surprised if you don’t find access to any. Most of the large online brokerage firms will at least take requests for Facebook shares, but they have rules. Some require existing balances of $500,000. Some will only consider people who already trade 30 times a day. Some even decide whether you’re worthy on a case-by-case basis. And even if you do, watch out for some exorbant fees or outrageous markup from its initial public offering.
If you’re using services like E-Trade, AmeriTrade, or anything similar, buying Facebook shares could be as simple as waiting on the reminder screen, clicking the company’s stock ticker “FB” and pressing Buy after the opening bell. However, most of these brokers (especially the online ones) require the purchase of stock in what’s called ‘lots’: That’s bundles of 100 shares. You’re subject to some hefty fees if you purchase less than that. Either way, this type of stock purchase will set you back a few thousand dollars. If you don’t have that much money lying around your only other way is Sharebuilder.
Sharebuilder is already taking what is called a limit orders on Facebook’s stock. This means the service will purchase a number of stock until you hit a certain limit. This will prevent you from spending more than you want. Each trade carries a $9.95 fee. So you’re still better off buying in lots than individually. But if you don’t plan on buy many shares. The only problem is you won’t know how many share you will be getting nor will you know much each of the shares costed you. Sharebuilder makes the trade but you may not be able to get Facebook shares at the price you’d like. Think Priceline for shareholders.
Personally, Sharebuilder is not exactly cost effective but if you’re mostly wanting to buy a single stock for the hell of it just so you can hang it next to your door, go for it. Just know that you’re basically spending about $39 just to get the certificate and even more just to frame it.
The Big Boys Go First
As an individual early buyer, don’t expect to get a good price on the stock. The way the IPO works is that banks and large investors get first dibs. The rest of us are left to fend for ourselves in the aftermath, and will pay a premium on the price set for the IPO stock. This is how brokers get their money.
This makes participating in the opening days of trading very risky. Investors will be crowding into the Facebook price wars and the instant trading begins don’t be surprised by bully brokers pushing prices far beyond its IPO price.
Similar to other Tech-based IPOs, the value of Facebook stock in the first several days will be far more than it’s worth and may potentially drop in value. Basically, if you buy at those shares at high prices, you may lose money. Think original iPhone.
Does this mean you can’t buy Facebook shares at the right price? Depends on how the market and investors respond to the IPO. When Google closed at $100 after its IPO at $85, everyone thought it was overpriced. Several years later and $300 richer at each share got everyone jumping on board. Personally, I’ll buy only if the price is reasonable and relative to the profit potential. If that never happens, that’s game over.
In other words, do your research, and watch from the sidelines for a few days before jumping into the fray.
A Word of Caution
As with any big event, there’s always the opportunity for mischief. Anyone can print out an official-looking stock certificate or claim to sell you stock. Do your research and make sure that the stock-trading company is legitimate. For instance, the Financial Industry Regulatory Authority offers a database of stock brokers where you can research the companies you may be about to deal with.