Adventures in spread betting, episode 2: Facebook

Sometimes the winning move is not to play.

Two bets were possible as Facebook hit the markets: the normal one when it started trading, and a pre-market punt on how many billions over $100bn the valuation would go on its first day. The latter attracted plenty of bets and at $137bn two-thirds of betters were long – hardly unanimous. I stayed out for two reasons. First, at a minimum bet of £10/pt and a stop no narrower than 100pts, my exposure was £1000 straight off the bat – well outside my risk taste at this stage. But second was simply instinct. While I’m familiar with technology valuations and Facebook’s finances, something didn’t feel right about the $38-per-share IPO, so I stayed on the sidelines.

This was the right decision: at the close, Facebook’s valuation was barely in twelve digits. (I.e a lot of people got burned.)

In the secondary market itself, the stock’s now trading around $33, way below its offer price. (It also seems Morgan Stanley has stepped in several times to prop it up.) If this surprises you – the hotttest technology IPO in years from a company that picks up around a third of all web pageviews in the Western world – here’s why.

(Learn the basics of spread betting by checking out this free trading guide. I still use it for reference even though I’ve probably read every page by now.)

Facebook and Google have roughly equal visitors and pageviews, but Google monetises each user around ten times better ($40bn revenues vs $3.8bn) at higher margins. The social network may be a great comms infastructure, but not perhaps a great investment. The site’s not going away – I believe (as a big user myself) it’ll continue to be the default social network for a billion people – but it’ll prove hard to monetise at a level that answers a high NASDAQ tick.

Facebook is a killer app… but a killer app the way email is a killer app. Not the way Office is a killer app.

And here’s the kicker. If I’d followed my instincts, I’d be £4480 richer. (Shorted when it started falling from $40 or so, sold when it hit $35ish.) Risking around £3k, sure, but my instincts tend to be right on such things. And that’s why I didn’t do it. Spread betting, for me, is not gambling; I treat it as I would any other investment. I don’t risk my pot on hunches.

If you don’t know why you’re making the bet, don’t make it. I may have “lost” £4k+, but I’m gaining the discipline I need to be among the third of spread betters who make money at it.

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