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Mark Cuban Blames Himself For Losing Money On Facebook IPO 186

Posted by timothy
from the you're-too-kind dept.
McGruber writes "In a blog entry, American business magnate Mark Cuban explained who he blames for his losing money in Facebook stock: 'I bought and sold FB shares as a TRADE, not an investment. I lost money. When the stock didn't bounce as I thought/hoped it would, I realized I was wrong and got out. It wasn't the fault of the FB CFO that I lost money. It was my fault. I know that no one sells me shares of stock because they expect the price of the stock to go up. So someone saw me coming and they sold me the stock. That is the way the stock market works. When you sit at the trading terminal you look for the sucker. When you don't see one, it's you. In this case it was me.'"
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Mark Cuban Blames Himself For Losing Money On Facebook IPO

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  • by OzPeter (195038) on Sunday September 09, 2012 @11:13AM (#41280063)

    From Google Nasdaq FB [google.com]

    18.98 +0.02 (0.11%)
    Sep 7 - Close
    Range 18.78 - 19.42
    52 week 17.55 - 45.00
    Open 19.10
    Vol / Avg. 36.37M/51.68M
    Mkt cap 40.66B
    P/E 105.96

    So down to well under 1/2 of the IPO opening price - if was Gomez Addams I'd be breaking out the champagne!

    • It's a $5 stock. (Score:5, Insightful)

      by mozumder (178398) on Sunday September 09, 2012 @11:29AM (#41280171)

      I usually price stock at 1:1 price:revenue (a very traditional measure), in which case it's a $2-3 stock, reaching maybe $5 over the next couple of years.

      In any case, Facebook is a dead-end for advertisers. They need to figure out a way to make money without advertisements, since social media is terrible for ads. Why would a company pay to have their ad next to a photo of your friend from high-school throwing up, when they can place it next to a fashion spread of Kate Moss? This is why social media will never compete against traditional media, because they won't be able to bring in the national advertising dollars, and will forever be stuck with local 10 cent ads.

      They're trying to fix that with their edge-graph algorithm, to only shows you stories that are popular, but the problem with that is that it's a computed process, not an human-edited process that advertisers prefer. Also, this kills brand Facebook page views, so brands have less reason to care about Facebook if their stories only reach 6% of their likes. Twitter doesn't filter out your posts, so it reaches all your followers.

      Facebook has an audience of 900 million, yet only makes $4billion/yr. Conde-Nast has an audience of maybe 20 million, yet also makes $4 billion, because professional human production & editing will always win over amateurs and computers.

      • Insightful (Score:4, Interesting)

        by Kupfernigk (1190345) on Sunday September 09, 2012 @11:46AM (#41280277)
        I tend to agree. I would amplify one of your remarks, though: Internet advertising is in any case a race to the bottom. Advertising in our local dead-tree newspaper is now quite expensive. Why? Because although the circulation has shrunk, it has shrunk to people who (a) can read, (b) are prepared to pay money and (c) are likely to be older and, by implication, richer. It's the same process by which real targeted advertising is very expensive in terms of cost per mail shot, but for high value goods it is cheaper per sale than anything else.

        So: If I had to pay for Facebook (as I pay for my Dropbox account) how much would it be worth to me? Well, to me it's worthless and I don't use it. Currently the UK paid-for nearest equivalent is BlackBerry services which cost around $5/month. But that includes an internet allowance, so the incremental cost is about $2/month. If 800 million users were prepared to pay $24 a year, that would come out to around $20 billion a year in revenue, maximum. Most people are unlikely to be prepared to pay that much. My guess is that realistically on present numbers that puts a limit on Facebook of about $10 billion, which suggests that it has nowhere to go except flat or down.

      • Re: (Score:2, Insightful)

        by jo42 (227475)

        I usually price stock at 1:1 price:revenue (a very traditional measure), in which case it's a $2-3 stock, reaching maybe $5 over the next couple of years.

        I priced, and continue to price, Facebook shares at the value of a wet fart. No more, no less.

      • by fustakrakich (1673220) on Sunday September 09, 2012 @12:17PM (#41280443) Journal

        $5 stock...

        Damn! Is that what a penny stock costs now? That inflation thing is worse than I thought.

      • ... Facebook is a dead-end for advertisers ...

        For an iPhone/iPad app [perpenso.com] I find that google ads are more effective and cost less. I've run a rotation of google-only, facebook-only, google-and-facebook, and no ads. Maybe facebook ads work for web and desktop but they do not seem to work for mobile.

      • Why revenue per share? That is such an odd measure. It has some fine points - if you are a start up or some other condition where it is hard to figure out profits - but for most companies it is worthless. Take a look Apple vs. Ford. They go off in completly different directions. Does this mean F is underpriced and Apple overpriced? No. This is because Apple (and FB) have low capital and input requirments and F has high capital and input requirments.

        It is future cash flow to the shareholders that count - t

      • by Genda (560240)

        Depends on how smart the advertizing algorithm is... If the add next to your puking Frat Bro is Peptobismol... then it makes way more sense than trying to sell that stuff with Kate Moss. Even Kate Moss puking. If you could use artificial intelligence to categorize facebook images and add metadata tags to them, then you could create who genres of advertizement specific to the images on a person's page and have a much better shot at capitalizing on the images. The problem isn't the social network, its the int

      • by Raenex (947668)

        Why would a company pay to have their ad next to a photo of your friend from high-school throwing up, when they can place it next to a fashion spread of Kate Moss?

        Market data, that's why. By knowing so much about the person they are advertising too, they can create more effective ads. Facebook is an underutilized goldmine for advertising, and I think there's a good chance Facebook eventually figures it out and justifies their high IPO price. Then again, they may just fall victim to the "Next Big Thing". Time will tell.

  • if I was an investor, I would have stayed far far away. I'm pretty sure the majority of people who lost a lot of money on it don't actively use it; their biggest experience with it was watching a relative play Farmville.
    • by Anonymous Coward on Sunday September 09, 2012 @11:28AM (#41280159)

      Many of us did stay away - far away. Facebook and GroupOn were a no brainer for me NOT to invest. I'm mostly a "value and growth investor" and those two companies had neither of those. It seemed to me that those IPOs were to cash out the VCs and original investors; not to get more capital to expand or invest.

      The folks who bought the stock after the IPO were folks who either didn't look at the financials or folks who were hoping for the Greater Fool Theory [wikipedia.org] to work for them. In either case, if they paid attention to the late 1990s, they would have been a bit more careful.

      Although, I don't want to seem too cocky/arrogant/know-it-all because I thought the same of Apple a few years ago and I think it's too late to get in on the APPL gravy train. Investing can be real humbling .....

  • by Trepidity (597) <delirium-slashdot&hackish,org> on Sunday September 09, 2012 @11:16AM (#41280079)

    I feel like I might actually be dumber having read that series of comments.

    • Chabenisky is one of those odd fellows who doesn't seem to have done anything at all of any interest yet has ended up very rich. He seems to have repeatedly started up and sold uninteresting firms for a lot of money.

      I expect he is just a fucking brilliant salesman.

      But that doesn't make him a good investor.

  • by notdotcom.com (1021409) on Sunday September 09, 2012 @11:16AM (#41280085)

    I'm sure that it isn't the first time that this quote, or a variation has been uttered, but Mark's quote sounds an awful lot like the opening scenes of "Rounders"

    Mike McDermott: "Listen, here's the thing. If you can't spot the sucker in the first half hour at the table, then you ARE the sucker."

    (Thank you, IMDB)

    • Re: (Score:3, Informative)

      by Anonymous Coward

      Yes, it's an old, old saying he was paraphrasing. Believe it or not, not everything in Rounders is original.

  • by hawguy (1600213) on Sunday September 09, 2012 @11:28AM (#41280163)

    When the stock didn't bounce as I thought/hoped it would, I realized I was wrong and got out

    The bounce is the problem with the IPO market - if the stock was priced correctly, there should be no bounce (and no crash either). If the stock bounces, it means the company left money on the table that should be in their pockets. If the stock crashes, then it means that investors lost money that never should have gone to the company.

    An IPO auction [marketwatch.com] would be more fair, that way everyone who wants to buy shares can get some if they are willing to pay the auction price. With prorata distribution they may not get as many as they wanted (and they may try to game the system by asking for more than they wanted), but you don't need to have special ties with the company to get IPO shares at the opening price.

    • by iluvcapra (782887) on Sunday September 09, 2012 @11:58AM (#41280339)

      The bounce is the problem with the IPO market - if the stock was priced correctly, there should be no bounce (and no crash either).

      "Correct" is a matter of interpretation. Underpricing the IPO is one of many clever ways of compensating angel/venture capital, stock-compensated employees, and the investment bank in a manner that doesn't have to be costed on an income statement and will be taxed at favorable capital gains rates.

      • by hawguy (1600213) on Sunday September 09, 2012 @12:05PM (#41280385)

        The bounce is the problem with the IPO market - if the stock was priced correctly, there should be no bounce (and no crash either).

        "Correct" is a matter of interpretation. Underpricing the IPO is one of many clever ways of compensating angel/venture capital, stock-compensated employees, and the investment bank in a manner that doesn't have to be costed on an income statement and will be taxed at favorable capital gains rates.

        Right, which is again part of the problem. The purpose of the IPO is supposed to be raise capital for the company, it's not supposed to make millionaires out of investors and employees, and certainly not supposed to make multi-millionaires out of well-connected millionaire investors. Adding all of these other aspects to the IPO makes it harder for an investor to know whether it's really a good investment or not. An IPO should not be used as a lottery ticket for those connected enough to get in early.

        Which is why the auction format is so rarely used - Google had the clout to force underwriters to do an IPO auction, but they sure did grumble since they lost much of their ability to reward clients with a big bounce.

        • by Compaqt (1758360)

          Wait, but if the price of the Google IPO didn't go up, how is it that Brin & Page are billionaires? Not to mention the Google chef phenomenon [wikipedia.org]?

  • idiots (Score:4, Insightful)

    by chichilalescu (1647065) on Sunday September 09, 2012 @11:30AM (#41280177) Homepage Journal

    I have no respect for anyone who's business model is "there are a lot of suckers in the world". I know most rich people use this business model, but I am convinced that humanity as a whole (including them) suffers a lot because of these nearsighted selfish idiots.

  • Wasn't (Score:5, Funny)

    by JustOK (667959) on Sunday September 09, 2012 @11:31AM (#41280187) Journal

    Wasn't there are a US trade embargo against Cuban and his cigars?

  • by Anonymous Coward on Sunday September 09, 2012 @11:35AM (#41280205)

    He's publicly stating that much of the stock market is about finding the bigger bagholder- the poor sap you stick with the losses to gain thereby.

    It's about time one of the high-rollers owned that reality.

    • by xmas2003 (739875) *
      Contrast Mark Cuban's "personal responsibility" position with that of the New York Times which "blamed" the Facebook CFO.

      Let me guess which one is a Republican and which one is a Democrat?!? ;-)
      • Let me guess. The republican is the one who knew that Schmuckerberg made a regular practice of illegal underhanded business dealings and doesn't think he should be blamed for any of it, right?
    • by ExploHD (888637)
      Just like the all of the banks who created mortgage-backed securities; they knew that those securities weren't worth the paper they were written on, but some sucker on the market would gladly buy it and would be left holding the bag when the housing market would collapse. Too bad so many other banks bought those securities and we had a credit crunch.
  • by Anonymous Coward

    When you sit at the trading terminal you look for the sucker. When you don't see one, it's you. In this case it was me.

    And there is the great truth of the stock market, revealed by someone who knows how the system works.

    • by sjames (1099)

      Yep, a bunch of cons trying to out con each other. Such a fine and morally upstanding pursuit!

  • by istartedi (132515) on Sunday September 09, 2012 @12:07PM (#41280401) Journal

    His view of the stock market is cynical. The guy selling you stock might really be taking a vacation. He might be a 'boomer selling down his IRA to make ends meet.

    Cuban sounds like yet another Internet mind-reader in this piece.

    As for FB, I smelled trouble before it even went IPO. It boggled my mind to think anybody would have an interest in it. At 44 though, I forget that when I was new to investing I was avidly interested in Netscape.

    Cuban should have been able to see this a mile away. It was held private for so long. A PE of 100 is fine if there's room for growth, but FB is already claiming a billion users in a world with single-digit billions. Any additional monetization degrades the experience and reduces that count, perhaps dramaticly. The site has some value, but HTF could I know? The only winning move is not to play.

    • by fermion (181285)
      In either of those cases, the seller is the sucker. If the seller has to sell, then they cannot afford to wait for a good price and you get the deal. It is cynical, but also reality. one can say that both parties are recieving benifits, but that does not mean that one party is not getting greater benifits.
      • Nonsense. If I have to sell some stocks to pay my mortgage, the benefit is to the buyer of the stock, and to myself in paying off my mortgage. That I am selling it for not the highest price of all time does not mean I am not receiving a great benefit.

        But yes, the entire Web 2.0 thing has been a joke derided by many learned techs over the past few years. It is the DotComs all over again, but without the tech, and with more marketing. And without developing some real ground-breaking technology, the value of t

    • He says he was not buying the company on the firm foundations principle. He was buying it because he thought it would get a momentum pop and he could sell it off at a higher price.

      And often, even with sketchy companies, getting in on an IPO affords you the opportunity to make money off the imbalance between supply and demand on day 1. It's been this way a long time, see the IPO craze of the 1970s.

      The only big problem is sometimes this won't happen and you will lose money on your trades. That's what happened

    • by dkleinsc (563838)

      His view of the stock market is cynical.

      So is almost anyone who knows anything about it.

      Here's part of why: The guy selling you stock to finance his vacation, the 'boomer selling down his IRA, etc are not even close to the majority of the market. The very large institutional investors like Goldman Sachs and Bank of America basically set the prices on everything, for whatever reason they so choose.

      • by istartedi (132515)

        If BofA and GS want to set prices arbitrarily, good! They almost certainly won't set them to fair market value. They almost certainly can't do so indefinitely, since the cost of maintaining disequilibrium across the broader market has to be astronomical. It's either a tremendous buying opportunity, or a tremendous shorting opportunity if you're patient.

        This kind of talk is loudest in the precious metals community, and usually takes on a "glass half empty" kind of view wrt to "price suppression". For som

    • by Kjella (173770)

      His view of the stock market is cynical. The guy selling you stock might really be taking a vacation. He might be a 'boomer selling down his IRA to make ends meet. Cuban sounds like yet another Internet mind-reader in this piece.

      Maybe, but unless you're going to make a company takeover and go private then you're dependent on what other people will pay for the stock in the future. If you think a stock is under/overvalued, fine. When is the market going to realize that? Or is that stock still going to be under/overvalued in 1, 2, 5, 10 years when you want to get out? If you realize that the next product Apple is launching is going to be an iFlop, you can short stock now and cash in a year from now when it's obvious from market report

    • by pepty (1976012)

      His view of the stock market is cynical. The guy selling you stock might really be taking a vacation. He might be a 'boomer selling down his IRA to make ends meet.

      But 75% of the time the other side is a brokerage's computer trading system placing its bets based on information you don't have yet, and 24.9% of the time it's someone who's paid handsomely to trade other people's money. Unless that 'boomer is selling to you directly it's the market that will be taking advantage of him, not you.

    • A PE of 100 is fine if there's room for growth

      You do realize that most people would consider that to be an absolutely crazy PE to buy at, right? For historical comparison, the S&P 500 P/E was 45 just before the dotcom bust in 2000. The Japanese stock market reached a peak P/E of 68 in 1989 at the end of a 15 year long bull market before the crash and property value deflation of the 1990s gave Japan their "lost decade". The US housing bubble exceeded P/Es of 50 (the price of the home vs the income that it could generate as a rental) at its height i

      • by istartedi (132515)

        That's why I said if there's room for growth. Amazon was probably not a bad deal when it had a PE of 100 and people were transitioning towards shopping online. You were paying a trailing PE of 100 because you expected today's price and tomorrow's earnings to equal a PE of 15, by which time the stock's price would probably continue to reflect a PE of 100... you get the idea.

        Now yes, that's pure speculation. It's not my kind of trade because it's risky; but at least I can understand it and I don't think i

  • Think about that. All those facebook addicts out there. I bet that most of them would be willing to pay $1 a month to use it. That's about $800,000,000 a MONTH in revenue. Even if only half of them sign up that's still $400,000,000. If you pay the dollar you get an add free version and maybe a little more control on how your data is used and shared. People pay to use Dropbox why not facebook?

    • by tstrunk (2562139) on Sunday September 09, 2012 @12:46PM (#41280677)

      Think about that. All those facebook addicts out there. I bet that most of them would be willing to pay $1 a month to use it. That's about $800,000,000 a MONTH in revenue. Even if only half of them sign up that's still $400,000,000. If you pay the dollar you get an add free version and maybe a little more control on how your data is used and shared. People pay to use Dropbox why not facebook?

      Half of them won't sign up, i'd be surprised if 1% would sign up. Facebook needs critical mass. It they take a dollar to let you post stuff on your wall, there will be a huge outcry among all the users, even or especially the fans. Facebook will lose a lot of its fans and the mass will go to the next free social media platform: Google+

      • by pepty (1976012)
        How many of the 'bot accounts created to generate likes and ad views would pay $1 per month? If paying up would garner the account a shiny "verified real live human" badge to show to advertisers, maybe quite a few ...
    • Think about that. All those facebook addicts out there. I bet that most of them would be willing to pay $1 a month to use it. That's about $800,000,000 a MONTH in revenue. Even if only half of them sign up that's still $400,000,000. If you pay the dollar you get an add free version and maybe a little more control on how your data is used and shared. People pay to use Dropbox why not facebook?

      Facebook already makes almost $4/month/user. An extra $1/month/user wouldn't significantly change their financials. To get in line with comparable stocks in terms of P/E, they'd need you to pay around $20/month. Would you do that?

      • Certainly not. And for the record I don't use Facebook. I wouldn't pay $0.05 a month for it. But I know a lot of people that use it every day and they well might be willing to pay. Who knows? I just thing it's an interesting conversation. This is what everyone seems to be trying to figure out - you start up some free service and get lots of people using it but how do you actually make money on it?

    • Storage is something both costly and tangible. Social media is not. There is nothing nherent to Facebook that keeps users there. Popularity and convenience are the two draws, but like with Myspace, it is easy for a competitor to appear and fill the void with a free service. And the chances of people paying to have no ads is lower (due to noscript/adblock/etc) than it is with phone apps, which are already an order of magnitude less popular than free versions.

      Lose your customer base or have the pay service re
      • Sure, someone else could come along with a competing free service but I think you're underestimating the power of momentum. Take Google+ for example. Technically it's a very good site. I like their approach to privacy and the elegance of the circles. But compared to Facebook they have very little traction. I would be willing to bet that many of the people with Google+ accounts also have Facebook accounts. Plus, it's not that easy to get all your content off Facebook once you have invested a lot of time putt

      • Storage is something both costly and tangible.

        Are you not aware of the practically unlimited storage Facebook provides every member in the form of photo albums? Facebook is where most people keep their pictures, it is one of the first mainstream places that people can actually put pictures in order to allow all of their friends to effortlessly look at them. For a lot of people it has changed their photographs from something that is looked at on the back of a camera and then filed away, or something that is

    • by notdotcom.com (1021409) on Sunday September 09, 2012 @01:35PM (#41281055)

      The problem is that the decay would be exponential. If 50% of the users signed up for the paid subscription to "try it out", they would quickly notice that (about) HALF of their friends are now gone. So when time comes to renew the next month, those who lost a significant amount of friends (making the service useless) would quit.

      Then, the remaining 30% would have less friends subscribed and would cancel the next month. When you're down to 10% of the original user base, what incentive is there to stay? You can talk to about 1 of your 10 "friends" on the service. That would be pointless.

    • by fermion (181285)
      the idea is that charging a fee for use would also incurr costs like increased customer expectations and service levels. realistically only about 1% would upgrade to a paid service, and that would be for active users. If one bills yearly, $10-$15, most of that would be used for adminstrative costs. web based serices on the order of FB charge on the order of $50-$75 dollars a year.
    • by s7uar7 (746699)
      A more evil plan would be to charge $5 a month but give it away to a random 80% of the users. The other 20% would feel almost obliged to pay up or get left out of their friends' social circle
    • Lots of unsubstantiated claims in there.

      First off, if they charge, some percentage will stay. I don't know if it's 50% or not. It's not 100%. For those who DO stay, which? In my experience, there are creators and consumers on facebook. A small subset say interesting things. A large subset consume them. If the interesting people leave, the consumers will also leave. A fair amount of the producers don't necessarily say interesting things, they just repost things. If facebook charges money, Tumblr wil

      • "It's not 100%" - Agreed.
        " For those who DO stay, which?" - Good question. My guess would be the people that have the most invested in it in terms of friends, photos, posts, etc.
        "A small subset say interesting things. A large subset consume them." - Right again
        "If facebook charges money, Tumblr will get a massive influx of users." - Unsubstantiated claim. Some will stay, some will use a similar social media tool, some will just give up on it all together. I don't think anyone really knows what would happen.

  • by Glasswire (302197) <glasswire AT gmail DOT com> on Sunday September 09, 2012 @12:43PM (#41280639) Homepage

    Throughout the recent history of the last couple of decades of tech IPOs, the story has been that Wall Street underwriters screw the founders, programmers and other stockholders of the company that's going public by forcing them to UNDERVALUE the stock tremendously so the underwriters can give a free but valuable gift to their best customers who get in at the cheap IPO price, and flip the stock for a quick painless gain when the undervalued stock pops on first day of public trading. This basically cheats the original shareholders by giving them less than they should have gotten if the stock was priced fairly.
    This time, the tables were turned as the nerds managed to screw Wall Street, by hypnotizing the underwritersinto setting the IPO price way too high thereby screwing the favored investors instead of the tech company. It was so satisfying to see the 'gift'' that the underwriters gave their best buddies come back to bite those greedy weasels who got a price crash instead of the quick pop and sellout. Actually some of those let into the IPO (if they managed to get the broken Nasdaq to execute for them on that day) DID manage to flip FB and so a lot of the stupid investors were the second wave that mindlessly bought into the stock on the first day at close to the IPO price then watched it slide from there.
    As others have noted, FB's PE is outrageously high and there's was and is no obvious reason why it's going to be become very profitable (Google, by comparison, certainly DID have a real revenue model when they IPO'd). The problem is that there is a lot more money sloshing around in in the pockets of the US wealthy than brains in their heads.

  • rather than dependent on the socialist corporate welfare supplied by our government

    oh wait, i'm sorry, such condemnation only applies to poor people

  • Let's just repeat this, with some editing down:

    >'I bought and sold FB shares as a TRADE, not an investment. ... It wasn't the fault of the FB CFO that I lost money. It was my fault. [N]o one sells me shares of stock because they expect the price of the stock to go up. ... That is the way the stock market works. [Y]ou look for the sucker. When you don't see one, it's you. In this case it was me.'

    Well, it used to be, that when you bought a stock you made an investment... a long-term one, which required

  • by jandersen (462034)

    When you sit at the trading terminal you look for the sucker

    What an immensely sad comment on the nature of Capitalism, but very elegantly summed up.

He's dead, Jim.

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