Prudence not Prognostication

Posted by Paul Nichols on September 18, 2012 

According to the Wall Street Journal, 21 of Fidelity's Mutual Funds dumped nearly two million Facebook shares in June, less than two months after this "IPO (Initial Public Offering) of the Century" went public.  Over that brief period of time, this wildly anticipated and super-hyped stock plummeted to almost half of its original price.

 

Do we own, or did we own Facebook shares in any of our investment portfolios?  The answer is a resounding NO!  As with any new public offering, Facebook does not meet the screening criteria of Dimensional Fund Advisors (DFA), the primary investment company we use in the development of our portfolios. To put it simply, at this stage of its corporate life, Facebook is just too risky for too many of our clients.

 

Now, if Facebook had met DFA's screening criteria, it would have been just one of almost 13,000 unique holdings spread over 45 countries. Also while adhering to our passively managed philosophy, it would be held for long term growth and not for trying to turn a quick buck. Participating in an IPO would be stock picking which we feel is akin to gambling and of course no one loses in Vegas….right?

 

Back in May of this year, just one day before Facebook went public, we asked in our "Weekly Clarity Coaching" whether or not it was a good idea to buy Facebook. We wrote that it depends on your objective:

 

"If you want to gamble and speculate with your money, you may want to take a chance.  But you have got to be prepared to take a loss - perhaps a sizeable loss - if you are unlucky and the share price falls.  However, if you are serious about investing and you want to avoid gambling and speculating, buying individual shares of Facebook is something that we would not recommend."

 

Take a look at this link to a 1 1/2 minute Video discussing Fidelity's current relationship with Facebook.

 

http://live.wsj.com/video/fidelity-funds-were-done-with-facebook/5B93D00A-4306-4B70-ABA4-F2D3DEDC7135.html#!5B93D00A-4306-4B70-ABA4-F2D3DEDC7135  

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