The Facebook IPO Primer – Book Review

The Facebook IPO Primer – Book Review

The Facebook IPO Primer - Book Review

There is more money to be lost than made in most controversial IPOs, on average. Don’t get me wrong, this is a good book, and the author knows what she is talking about, but whether one should buy Facebook in its IPO next month is a huge open question, and I would encourage you to read this book to think through the problem.

If you read the book, you will get a healthy dose of skepticism, mixed with the idea that many large IPOs in tech have been successful, like Google.  The main idea is that you have to do due diligence.  All snowflakes have six corners, but they are all different.

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The book gives you five different ways to value Facebook, and those methods are all over the map, as they should be for a company where the economics are yet to be determined.  At least it is profitable.

The range of valuation gives everyone something to hang onto, but the thought process should force everyone to think about how Facebook will monetize all of their users.  Will the users behave in a way that allows Facebook to make money off them?  So far, yes, but the future is far more volatile than I can imagine.

In general, I would advise readers to avoid IPOs.  Most people lose money in buying them on the secondary markets.  Better you should buy stock in less flashy businesses like utilities, insurance, and energy stocks.  You will make more money there — businesses with a high earnings yield tend to do better than other stocks, and Facebook does not make it there, for now.  Buying Facebook implies a company that will grow far more rapidly than most, and far a long time, which is not common.

If you are thinking about buying shares of Facebook, spend five bucks or so, and get this book.  It’s less than a brokerage commission, and worth more than most in educating you about the value of Facebook.


None; this is a good book.  What matters most is how you think about it.

Who would benefit from this book: If you want to buy the Facebook IPO, buy this book and learn something.  Be aware before you buy, or be dissuaded before you do nothing.  If you want to, you can buy the book here: The Facebook IPO Primer.

Full disclosure: The publisher asked if I wanted to read the book electronically.  I said “yes” and I downloaded it and read it.

If you enter Amazon through my site (The Aleph Blog), and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

 By David Merkel Of The Aleph Blog

David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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