A recent blog post this week reports that Mark Cuban has revealed that he bought just under five million in Facebook stock. He must have been one of the investors that did not get the message that Facebook’s business was declining or he simply has money to burn.
The Dallas Mavericks owner admittedly purchased three blocks of 50,000 shares at $33, $31.97, and $32.50. Cuban tells that it’s a trade, not an investment. He likens it to buying a Mickey Mantle, a Hank Aaron, and a Barry Bonds rookie card, knowing there is a card show in town next week.
Cuban’s reason for the trade was interesting, especially since he never has had anything good to say about Facebook. He was recently quoted as saying that the disastrous IPO will be noted as just another good reason for the retail investor to stop playing the stock market. He goes on to reveal that in his opinion, any positive impression investors had of the IPO market and the stock market in general was just thrown out the window.
According to the multi-millionaire, when everyone you know that is remotely associated with the stock market builds you up with media news in a confirmation that a specific buy could be a huge IPO that will make a fortune for the buyers lucky enough to get the shares and just the adverse affect happens, it enough to make you walk away and lose all confidence in the market.
Looking at the big picture, Cuban agrees that the bubble in Silicon Valley is now falling apart. He does explain that it is not for the reasons that most people understand. Cuban says it is the rise of marketplaces for private stock like SecondMarket and SharesPost that are creating the negative effect on the IPO market. He also offers the thought that the demand for shares on the secondary market is extremely high and since there were few shares to spread around, the price continued to climb.
The real problem according to Mark is the fact that when it was time for the IPO to go public, the IPO price had to be higher than the current price on the secondary market. Even worse than that he adds, for the people who bought their shares in the secondary market and had the shares they wanted, drove the price up for IPO investors and were no longer going to by IPO that was counted on in the open market.
The way the market works combined with the massive number of shares sold in the IPO, created a supply greater than the demand in the Facebook offering. Therefore, the stock is $32.41 instead of the projected $38 per share. In short terms, it was a disaster. It’s all about supply and demand.
Cuban also points out another issue with Facebook. His opinion of the trends toward internet usage affects Facebook, Google, and other advertising supported revenue companies. He says that people believe that mobile advertising will outweigh PC browsing, but that ad plays are not able to draw the same amount of mobile browsing revenue as with PC browsing. While he does not believe that a significant shift will occur, he does believe that it is a concern for Facebook, Google and other prominent ad display entities.
Cuban does not offer any specific reason he decided to buy the stock. He does however admit that he has traded stock for 20 years and is good at it when he puts forth the effort. He says it is a lot of work. His words of wisdom include, if you are going to trade stocks, you have to follow the guideline that you should have a defined knowledge about the company you are trading and remember that every transaction has a sucker. Your job is to be able to determine whether that sucker is you, or if it is the person on the other side of the trade.