Global Profits Alert – Scanning The Globe For Extraordinary Profits RSS Feed

Even with the swelling of the eurozone debt crisis to more alarming size than ever, as Spain has overtaken Greece at least for the moment as the most important actor in that drama, much continues to be written and said about Facebook (Nasdaq: FB). Casual observers who aren’t interested in the stock market are aware that things didn’t go well, to put it mildly, in the going public party for the flagship of the brave new world of social media. (Global Profits Alert warned of this beforehand.) No need to recount in detail what happened, but for those who may have been living on another planet for the past couple of months, here is a look at one of the ugliest charts in the history of IPOs, if not the market:

Facebook Chart Since Its IPO

Source: Yahoo Finance

Amazing, no? Even for Wall Street veterans, to see the most talked about IPO in years go off at $38 and almost steadily plunge and try but fail to sustain a climb out of its self-made hole for several grim days afterward until it hit $26, was in an unpleasant way, the investing event of the year. Much has been offered in the way of opinion as to why the debacle went the way it did, with the technical reasons such as an oversupply, along with last minute analyst forecasts getting trimmed, and so on. Analysts and lawyers will eventually sort it out, or not. But one key thing happened: it was another stick in the eye for retail investors.

What Does Facebook Have To Do With Dividends?

Nothing, on the surface. Facebook pays no dividend of course and there isn’t even a hint that it ever would. But what was expected by retail investors was that they’d have a chance to participate, as in buying shares, in an enterprise that many avidly use. This was, despite the ultra-modern virtual business that Facebook is, an old-fashioned, either rock-solid or quaint, depending on your viewpoint, take on investing. Fast forward, retail investors got hammered. In another painful lesson, though shorter but no less bitter than the 2008-2009 cataclysm which killed buy-and-hold, probably forever, the retail investor had whatever remaining faith he or she had in the market severely shaken if not shattered.

S & P 500 Five Year Chart

Source: Yahoo Finance

The Legacy of 2008-2009

Many long term retail investors, who’d been schooled in buy-and-hold if they’d been schooled in anything, saw their 401ks and IRAs suffer a shocking fifty percent haircut or more in 2008 and 2009. More importantly than these numbers, though, many retail investors lost faith in the stock market and the process of investing in stocks. In what became a blur, retail investors felt at the mercy of, in no particular order, insider trading, self-dealing investment banks, untrustworthy brokerages, high-frequency algorithm trading, flash crashes, dark pools—you name it, any of the modern fuel-injected trading methods looked to have as their target, the retail investor wearing a bulls eye as big as a house. After all, weren’t the brokers supposed to protect the retail investors?

Hope Restored?

As the S & P 500 slowly retraced its massive fall into the 600s most of the way back—but not all—to its pre-crisis highs, a process that took nearly three years, things looked better for retail investors. The trouble was, as Sy Harding in his 1999 classic book, “Riding The Bear,” pointed out about bear markets, retail investors still tend to sell out at the bottom and re-enter at the top. But this time, the retail investors’ response has been for many to leave the market and not yet return. Although it seems preposterous in retrospect, many believed that the Facebook IPO would begin to entice retail investors back.

A Warning From An Extreme Critic

Mark Cuban, the successful and sometimes controversial owner of the NBA Dallas Mavericks, actually has more of a history as a businessman and investor than sports team owner. Best known for taking his company Broadcast.com public in one of the most successful IPOs in market history, with an offering price at $18 which rocketed to $62.75, Cuban was once an ultra-conservative, fundamental, long term investor. He now considers himself a self-described “stock market cynic, but I’m an informed one.” He only trades, no longer does he invest. He predicted the Facebook IPO would be slaughter, that it would destroy whatever faith in the market retail investors might still have. Even Cuban wasn’t immune, as he bought a total of 150,000 shares of Facebook at around $32. He hasn’t said what he did with them.

Businessman Mark Cuban

Source: Askmen.com

Dividends Still Stand Out

Although Cuban’s views are stark, one of the more fascinating things he maintains is that while the market landscape has changed so drastically in recent years, that the only stocks that investors should consider truly as worthwhile investments are dividend stocks. Those that pay the shareholder something. We’d add that historically, through all the worst of the market’s times, with the questionable machinations of many companies, there are still good and even terrific dividend opportunities for retail investors to profit from. Even in, or perhaps especially because of, the post-Facebook IPO era, dividends carefully selected can not only protect retail investors’ capital, but increase it substantially.

Committed to your Global Profits,

Jim Trippon
Chief Investment Analyst