OFFICIAL Facebook IPO Thread

[guerilla]

Therefore, I am arguing the traditional way to valuate a company is dated and inaccurate given the nature of internet based companies.

You're welcome to that opinion.

If you want to debate the merits of facebook, the merits of their business model or balance sheet, I am sure there are other guys who are into that. Frankly, I am not even on Facebook, and don't particularly care what happens to it or its price.

My only issue is when you say that the stock isn't worth what people are paying for it, when it clearly is because people are paying that price.

If we don't have a quarrel any longer, let's let it go.

 

[pocketrockets]

As highlighted above, you're wrong here.

The early stage VC's will be looking to get rid of much as they can to realise their profits to investors. The skills required to evaluate and manage an investment in a huge public company, are vastly different to a rapidly expanding "small" company.

As far as people like Peter Thiel go, he has more money than he could ever need, why hold out in FB for what's potentially more? He can put that money to use doing things he'll get more satisfaction from.

If you want to see big red flags, check out Groupon, where the CEO himself sold a massive amount of his holdings during a private funding round, now that shit is bad.

Again, I'm well aware what the VC's are doing. Simply stating the facts of numerous investors adjusting a significant % of their positions after the last IPO price increase -- they likely have calculated Facebook's value to be priced near perfection.

 

[Unarmed Gunman]

Alright I'm going to try this one last time.

Guerilla I think you may just be struggling with what "value" means in a business context. Your position is that value is subjective, but it is not subjective in business. There are long established valuation models used by investors that are used to determine the actual value of a company, then they use that information to make investments based on whether the market price is above or below the valuation. There is very little subjectivity about valuation in business.

To any investor worth a damn, values are not subjective. This isn't a cup of coffee in Starbucks we're talking about - this ownership of a business with revenues and expenses and a lot of other things that all have specific values associated with them. In other words, for an individual investor the value may be somewhat subjective (lol look how cool I am cuz I own 5 shares of Facebook lol), but that does not affect the value (the valuation based on economic forecasts and the balance sheets etc). If enough of those idiots exist in a market it can and will affect the price, but it has no effect on the value.

I really don't know how much clearer to make it so hopefully that explanation helps. Maybe you're just coming at this from an individual person's perception rather than what the actual value of the business is. I dunno.

Here is good primer on understanding business valuation: [ame="http://www.amazon.com/The-Intelligent-Investor-Definitive-Investing/dp/0060555661"]Amazon.com: The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (9780060555665): Benjamin Graham, Jason Zweig, Warren E. Buffett: Books[/ame]. It's a classic and a good starting point.

 

[guerilla]

Again, I'm well aware what the VC's are doing. Simply stating the facts of numerous investors adjusting a significant % of their positions after the last IPO price increase -- they likely have calculated Facebook's value to be priced near perfection.

Or they are just closer to their expected returns, and have to get liquid for the benefit of their shareholders.

Goldman-Sachs has to get returns, it's their operators head on a stick if they don't realize returns when they can, by deciding to get into long game stock speculation. That's probably not why they invested in Facebook. Two different games.

I think that is also part of the core misunderstanding here.

1. That everyone buys or should buy stock based on fundamental analysis (a lot of traders buy on technical analysis)

2. That share price is indicative of the overall health or long term viability of a firm. No one who trades regularly believes this. Markets like the stock market can be very liquid, very volatile and over-correct either way frequently.

 

[mituozo]

Alright I'm going to try this one last time.

Guerilla I think you may just be struggling with what "value" means in a business context. Your position is that value is subjective, but it is not subjective in business. There are long established valuation models used by investors that are used to determine the actual value of a company, then they use that information to make investments based on whether the market price is above or below the valuation. There is very little subjectivity about valuation in business.

To any investor worth a damn, values are not subjective. This isn't a cup of coffee in Starbucks we're talking about - this ownership of a business with revenues and expenses and a lot of other things that all have specific values associated with them. In other words, for an individual investor the value may be somewhat subjective (lol look how cool I am cuz I own 5 shares of Facebook lol), but that does not affect the value (the valuation based on economic forecasts and the balance sheets etc). If enough of those idiots exist in a market it can and will affect the price, but it has no effect on the value.

I really don't know how much clearer to make it so hopefully that explanation helps. Maybe you're just coming at this from an individual person's perception rather than what the actual value of the business is. I dunno.

Here is good primer on understanding business valuation: Amazon.com: The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (9780060555665): Benjamin Graham, Jason Zweig, Warren E. Buffett: Books. It's a classic and a good starting point.

So basically you're arguing that "value" actually means "value as defined by P/E and other financial calculations" rather than "value" meaning the dictionary definition of value:

1.
relative worth, merit, or importance: the value of a college education; the value of a queen in chess.
2.
monetary or material worth, as in commerce or trade: This piece of land has greatly increased in value.
3.
the worth of something in terms of the amount of other things for which it can be exchanged or in terms of some medium of exchange.
4.
equivalent worth or return in money, material, services, etc.: to give value for value received.
5.
estimated or assigned worth; valuation: a painting with a current value of $500,000.

Facebook's value is unique to the individual person giving it a valuation, which is all that Guerilla is saying. How that valuation is determined is entirely irrelevant.

A company's value is what you as an individual think it is worth.

Also, the value of a cup of coffee isn't really that simple.

Coffee beans supply/demand, coffee production, oil prices, cup production.. A whole host of other things too.

A cup of coffee's value could therefore be calculated as being a combination of tons of different factors, to give an exact formula and figure for calculating a cup of coffee's price.

I walk into a coffee shop and I don't give a shit, I'm thirsty, shattered and will pay $3 for my cup of coffee despite the above. I wouldn't pay $8 though, I'd go get another drink somewhere else. I'd probs max out at a different price depending on the situation at hand, my affinity to the brand and tons of other things. The coffee shop still values it based on that formula though.

 

[guerilla]

Guerilla I think you may just be struggling with what "value" means in a business context.

I know what value means. The greatest economist of the 20th century, Ludwig von Mises wrote "Human Action" which is 881 pages (pocket edition) to detail exactly what value is, and how it is applicable to the study of human activity.

It is the only book I keep on my desk at all times, mostly as a reminder never to forget the fundamentals of why man acts.

Your position is that value is subjective, but it is not subjective in business.

Any time humans are involved, value is subjective. That's not an opinion, it is a fact. No two humans value anything exactly the same. Using a methodology, even if it produces the same result for you and I, still doesn't mean we both value that conclusion the same.

If businesses had an objective valuation method, then we wouldn't need markets because there would be no arbitrage (all values are equal between actors; knowable). That is epistemically impossible.

This stuff is so simple, but like many things we debate, you don't have a foundation in understanding why, and so like to repeat what what what over and again. Whether it is something you believe, or heard, or read or were taught, you don't reason from first principles because you don't seem to have any first principles of economic or social thought.

That's not an insult, but it is I think, fairly accurate. All of your positions are ad hoc, and in many cases, contradictory. On the one hand, you say you understand Ron Paul's economics, then you take positions against the very core of Ron Paul's economic understanding. Either you're lying, or you're confused, and while I don't think a lot of your character, I prefer not to think you're lying, hence why I keep replying to you.

I am honestly hoping (probably along with half of the intelligent people on this forum) that you have an epiphany one day, and it all falls into place for you. A rational approach to human interaction.

To any investor worth a damn, values are not subjective.

That's your opinion, not a fact. You have to separate the two. Despite how smart we may think we are, our opinions and values aren't synonymous with objective reality.

I really don't know how much clearer to make it so hopefully that explanation helps. Maybe you're just coming at this from an individual person's perception rather than what the actual value of the business is. I dunno.

Methodological individualism. Firms are simply abstractions. Any grouping is an abstraction at the end of the day. Whether it is a firm, a corporation, a government, a council or a church. At the end of the day, only individual humans can act. These abstractions cannot act independent of the individual humans which comprise them.

 

[Unarmed Gunman]

So basically you're arguing that "value" actually means "value as defined by P/E and other financial calculations" rather than "value" meaning the dictionary definition of value:



Facebook's value is unique to the individual person giving it a valuation, which is all that Guerilla is saying. How that valuation is determined is entirely irrelevant.

A company's value is what you as an individual think it is worth.

Also, the value of a cup of coffee isn't really that simple.

Coffee beans supply/demand, coffee production, oil prices, cup production.. A whole host of other things too.

A cup of coffee's value could therefore be calculated as being a combination of tons of different factors, to give an exact formula and figure for calculating a cup of coffee's price.

I walk into a coffee shop and I don't give a shit, I'm thirsty, shattered and will pay $3 for my cup of coffee despite the above. I wouldn't pay $8 though, I'd go get another drink somewhere else. I'd probs max out at a different price depending on the situation at hand, my affinity to the brand and tons of other things. The coffee shop still values it based on that formula though.

There is a world of difference between finance (which is used to value business and other assets) and economic theory which is being misapplied here in this thread. Some people are trying to apply economic theory in a field that is specific to finance.

I know what value means. The greatest economist of the 20th century, Ludwig von Mises wrote "Human Action" which is 881 pages (pocket edition) to detail exactly what value is, and how it is applicable to the study of human activity.

Again, you're trying to stick a square peg in a round hole. This isn't economic theory 101, this is finance. I gave you a resource, at least spend some time understanding it before you continue. It's getting tiresome.

 

[lukep]

I got this one Guerilla-

UG, oddly enough, G's right on this one, although being right about this won't make you a better trader.

At the core of any possible dealings between more than one human, you have economics. Economics is more than some math; it is about fairness. Finance is just one subset of economics.

So how could the entire world you know of business finance exists with a shared "X" definition of Value, while the underlying world of economics has an almost drastically-different "Y" definition for it?

Because the majority of them (could be all of them!) have lost their way. That's right; the trader's definition of value is just a human construct and it was necessarily created to make business dealings easier as their trades got harder and more frequent.

No matter how many humans are using that definition, it doesn't make the definition right. -It just makes it popular.

Be smarter than the masses... It'll help you go further in life.

 

[guerilla]

UG, oddly enough, G's right on this one, although being right about this won't make you a better trader.

Absolutely true.

Economics != finance. But finance does not exist independent of economics.

Economics is about cause and effect. Finance is about the intimacies and intricacies of business and capital deployment.

You can be a genius at raising venture capital and be absolutely clueless about capital theory. Just like you can be a world class race car driver without knowing how to rebuild an engine. Without the car however (or economics in this case) there is no car to race.

 

[erifdekciw]

This thread

 

[johnmatrix]

UG, oddly enough, G's right on this one

Absolutely true.

 

[Unarmed Gunman]

Finance is just one subset of economics.

lol

Economics != finance. But finance does not exist independent of economics.

Let me put this in gay webmaster terminology. Trying to use economic theory for business valuation, rather than financial business models and accounting principals would be like trying to write a web scraper with HTML rather than PHP and cURL.

Good luck with that.

 

[dreamache]

 

[quality_seo]

Yep...

 

[CCarter]

Sooo.... Facebook has a class action lawsuit against them for $15 billion... Something about wiretap, since they track cookies after people logout. $100 a day for ever user, max of $10,000 per user per year... Let's see "what the market will bear" on this news.

http://www.rt.com/news/facebook-lawsuit-billion-cookies-649/

 

[jonas33h]

Guerilla

Unarmed Gunman

Skimmed through your debate. . .

UG- You don' think value can be subjective -- wrong it can be and that is known as market price, i.e speculators drive price up based off of speculation and valuing a company at a subjective price. but you are right a business has to objectively value it's business or it's net worth different than stock price i.e its intrinsic value.

G- I think your stance is what I just posted above so you win.

I will be delivering your golden gloves via fedex ASAP.

but for the record all this was already explained with two definitions like 3 pages ago!

 

[jonas33h]

lol



Let me put this in gay webmaster terminology. Trying to use economic theory for business valuation, rather than financial business models and accounting principals would be like trying to write a web scraper with HTML rather than PHP and cURL.

Good luck with that.

correct that is why they do not use accounting to figure a stocks price. . . .

do accountants really send new valuations every second to nasdaq or does the market determine what they are willing to pay that very second making the price subjective to what the purchaser or seller are willing to trade at?

 

[guerilla]

G- I think your stance is what I just posted above so you win.

Oh goody, I win internet. Now I can turn off my PC and go outside.

 

[guerilla]

Actually, the term "intrinsic value" is nonsense. It doesn't actually describe anything that isn't covered by "value is subjective".

Peter Schiff uses "intrinsic value" when talking about gold to reflect that gold has more uses than as a trade commodity, and has a market (price) for use in those industrial and aesthetic (jewelry) applications.

He may just be using a term other people abuse to make his point for the sake of convenience, I don't know. Schiff is a lot smarter than he plays on TV and radio.

But gold itself doesn't have a particular price that is intrinsic to the fact it is gold.

Your business has a value to you, based on the metrics you use (whatever that may be) to determine it. Likewise, the buyer has his own way of valuing your business. It's rare the two are coincidentally the same, unless you're both using and trust the same methodology, but there is no prerequisite of rational business behavior to use the same methodology.

You don't have a price for your business until someone exchanges money to buy it. This is a fundamental insight of price theory, that an unencumbered market actor has to be willing to meet a value in order for a free market price to be established. Also, all prices are past prices, because of the concept of marginalism (each incremental unit may yield decreasing utility).

Warren Buffet bought companies cheaper than he thought they were worth. That's why anyone exchanges, they want the thing they are trading for, less than what they are giving up to get it, or they wouldn't make the trade. Thus, every market transaction is based on arbitrage. Remove subjective valuations and you remove arbitrage. No arbitrage, people wouldn't trade (pay more than they think something is worth).

So regardless of what you "think" your company is "worth" it can only be priced that way if someone else will pay that much.

Some of you guys who have been doing business for a long time should be understanding this, for example, why some inventory has to clear (liquidate) back into cash regardless of it's "value" at 100% of normal market rates, or firms that are purchased at a discount (xx cents on the dollar) due to distress, lack of buyers, etc.

Again a lot of this stuff is obvious and you can even derive principles from it if you're inclusive of exceptions instead of trying to create more exceptions to match a bias.

 

[jonas33h]

^ agree that is why market value is all that really matters I was just differentiating what he was arguing as value vs what you were arguing which I think we can agree is the true value=market value . . . if people aren't willing to pay xx dollars is it really worth that price ?