
Hedge Funder Who Bet $100 Million On Facebook IPO Is Furious - xtiy
http://finance.yahoo.com/news/exclusive-q-hedge-funder-bet-184159786.html
======
nl
I love this story on so many levels.

Firstly there is the irony of a "blue collar hedge fund manager"

There's the fact the lack of an IPO bump means Facebook equity holders are the
people who made money out of it, instead of the investment banks buying at the
opening and hoping to sell at the bump price.

Then there's the whole "HN thinks Facebook is worthless and has the
satisfaction of seeing the stock drop on the opening day." thing. Now it turns
out all the self-congratulation over people's "insightful analysis" was
probably misplaced - Facebook may or may not be overvalued, but the stock
price probably doesn't reflect the market consensus yet.

Finally, in an ironic twist Shakespeare would have been proud of it turns out
that it was probably the NASDAQ's _computer system_ that meant Facebook missed
an IPO bump. Silicon Valley loves talking about how Wall St over-hyped IPOs
during the dot-com bubble and blaming it for the lack of a significant IPO
exit strategy since. Now it was a _computer system_ that failed Silicon
Valley's great hope of reigniting the IPO market.

~~~
to3m
This particular man presumably understands class as the English do - that in
many cases, it's as much (or more) to do with your upbringing and background
as it is to do with your current social status.

Perhaps "blue collar" isn't quite the term for this, though. I can't imagine
there are many blue collar workers in a hedge fund. Maybe the cleaners...

~~~
ticks
I guess he's trying to say that he feels like he shouldn't be there, a
pretender to the throne. Happens a lot when you are working class and join a
department/division that attracts people from more affluent families.

------
dangero
I bought Facebook with a limit order when it went on sale to the general
public last Friday, and I can confirm it was a terrible experience. Here's
basically what happened:

I put in a limit order through tdameritrade the night before with a max price
of $44. I'm in front of the computer that morning to watch my order when the
IPO starts. The price spikes up to 45, then treads around low 40s. I refresh
my account. My limit order has not gone through. I wait AN HOUR. Still, it has
not gone through so I cancel it. Now it says, "Pending Cancellation." It
remains "Pending Cancellation" for over an hour, so I try to call
tdameritrade, but their lines are completely backed up with calls. Finally,
the system suddenly reports that my order was accepted and I bought Facebook
at 42. It's only an hour from market close by the time I see this. What this
meant for me and most everyone else was that I was locked out of the market
for the first 2 hours after IPO and my assets were frozen. I could neither buy
nor sell. I don't think we can really know what the impact of this was on the
market, but it certainly didn't instill short term confidence in the Facebook
IPO and I think it definitely decreased the volume on the stock.

I'm not going to defend everything the guy said, but I do believe that NASDAQ
botched the IPO badly and it may be a few months before we know what the
market really values Facebook at. There may even be permanent damage done to
Facebook's reputation.

~~~
grey-area
_There may even be permanent damage done to Facebook's reputation._

Any permanent damage done to Facebook's reputation will purely be because they
overvalued the IPO, overstated earnings, bought out other internet companies
at inflated valuations pre-IPO, and burned those who bought at the inflated
initial valuation.

As to whether the trading system damaged confidence in Facebook - it's not
always possible to get the deal you want on a stock-market, and anyone placing
a limit order should know that they might get a vastly different price than
the one they expected - there are disclaimers in trading systems specifically
for this situation. Trading is stopped all the time by circuit breakers (see
Zynga that same day for example), depends on both willing buyers and sellers
at a given price, and of course depends on the trading systems not going down
for whatever reason. If you're buying as a long term investment of a stock
that you believe in this won't affect you. If you're speculating, particularly
short-term, you should recognise that the casino is rigged against small
investors - the stock market is not, and never will be, rational, fair, or
efficient; it's just the least worst option we have. However I don't believe
that lack of access to the stock or prices on the first day of trading has
anything to do with the current price ($31 last time I looked) - that's just
down to a bubble deflating and confidence evaporating as people start asking
questions about the true valuation.

Frankly I think this sort of talk of the technical issues is really a way of
avoiding talking about why people bought Facebook at the initial irrational
PE/price which (IMHO) has farther to fall before it becomes a reasonable
valuation based on their projected earnings. That's the real issue here, but
one which raises hard questions about the very high valuation of many social
media companies like Instagram, Facebook etc.

~~~
theorique
_anyone placing a limit order should know that they might get a vastly
different price than the one they expected_

If you place a _limit_ order at (e.g.) $100, your order should be filled at or
below $100 - no exceptions. The order will stay around until it is either
filled, manually cancelled, or expires (at end of day or at a prescribed
time).

A _market_ order can be filled at an arbitrary price because you are
communicating that you are willing to cross the bid-ask spread and meet the
market price, even if it's moving rapidly.

~~~
grey-area
Sorry this wasn't very clear. I meant that you might not get what you expected
(though it will conform to the rule you set, if it completes). Stocks can be
very volatile and a limit order only controls movement one way, so it doesn't
protect you from (say) a huge drop in stock price just after your order.

~~~
uptown
What does what happens after your order is filled have to do with your limit
order execution price?

If you want protection from price decreases after a buy, also put in a stop
order (which will turn into a market order) or a stop limit order (which
ensures execution at the specified limit price) but which may not execute if
the price movement is highly volatile.

------
zackzackzack
"Anonymous Hedge Fund Manager: No doubt. But this should have been a
blockbuster. This should have traded to $60 or $70. This should have launched
a wave of tech IPOs."

I think Facebook just deflated the tech IPO bubble for a year or so. No
average Joe is going to invest, because, "Well fuck, if Facebook didn't
explode, why would any other new tech company? No thanks." The bubble is still
there, but it isn't looking like it will be rapidly expanding like people
expected it to after the fb IPO.

~~~
waterlesscloud
I think it's longer than a year. It'll take something really huge to overcome
"Well, if Facebook couldn't break out, who can?"

That will ripple back through all investment phases since the ipo is the dream
payoff day for many investment rounds.

~~~
tibbon
I agree with you. For all the startups that wanted to be the "Facebook of
X"... if Facebook couldn't do it, why could they?

~~~
malandrew
Mos' def. They now have a reason to start looking at a revenue sources that
aren't based on ads.

Every time I hear about a startup trying to shoe in an ad-based business model
where you could make money selling directly or via high value _intent-based_
referral fees to complementary businesses I cringe a bit. A lot of the time
ads as a revenue stream are a total cop out that demonstrate a total lack of
business sense an ability to spot value.

Google is successful in ads because they are a generalist intent capture
platform. Unless your business also happens to capture generalist intent, you
should be thinking about referral revenue based on _focused intents._

~~~
tibbon
I just thought we learned years ago that the ago model really wasn't a good
one.

------
powera
This guy is a moron. Anybody who believes the stock would be at $70 if "the
market" worked better doesn't understand how markets work in theory or
practice. If there are people who really believe the stock is worth $70, there
would have been buyers the past two days. Expecting "hype" around the IPO to
support ONE HUNDRED BILLION dollars of extra valuation is beyond stupid.

~~~
mbreese
There very well may have been buyers on Friday who thought the stock was worth
$70. If the market had been able to handle the volume, then we may very well
be seeing FB at $70 today. However, since we know that the market couldn't
handle the volume, it most certainly _did_ affect the share price on Friday.
Now, you let people sit and think about this over the weekend and they may
have different feelings about that supposed $70 valuation.

Next, if you assume his story about selling on Monday was true, you have
additional downward pressure put on FB as a result of NASDAQ itself. So much
so that it closes at $34, eroding everyone's confidence in the $70 valuation
that they had in their minds on Friday.

Markets only work if they operate efficiently (can handle the volume). When
they don't work efficiently, they become harder to predict. And if an investor
can't even be sure of what their position is, they can't participate in the
market at all. It isn't at all out of the question that glitches in NASDAQ
could have caused FB shares to plumet. It most certainly took away any
possibility of an IPO bump.

The real question this beings up is what did NASDAQ know, and when did they
know it. If they knew their system wasn't going to be able to handle the
volume, as bad as that might have been for them, they should have aborted the
IPO (if that's at all possible).

~~~
jlarocco
Well, honestly we'll never know for sure, but if a weekend of "thinking it
over" cuts the price in half, did it _really_ deserve the $70 valuation? After
the hype, people are going to think it over at some point, right? Maybe it's
better that it happened right off the bat.

~~~
sneak
> Well, honestly we'll never know for sure, but if a weekend of "thinking it
> over" cuts the price in half, did it really deserve the $70 valuation?

You are confusing "should" with "is". Don't do that.

------
DigitalSea
My favourite part was when the hedge fund manager called himself "blue
collar". I couldn't care about the rest, boo hoo there were technical issues,
NASDAQ had a clause covering them in the event of technical issues and
Facebook stock didn't balloon into the $60 or $70 per share price range. I
don't feel one ounce of sympathy for anyone who can freely gamble away $100M
then have the audacity to complain about it, if the situation were reversed
the hedge fund manager wouldn't care if I lost out because I invested $100M
into Facebook stock either.

Don't get me started on the fact this disillusioned guy thinks the stock
should have been in the $70+ range. It doesn't sound like the guy should be
handling money full stop, he obviously has a lack of understanding when it
comes to the stock market.

~~~
antonioevans
To plenty of us in the tech field a successful Facebook IPO would have opened
up a path for other tech business to IPO in the near term. On top of that a
successful IPO would have opened up some funding in our hacker space (Paypal
Mafia/Google Mafia..etc). We want them to be successful.

~~~
malandrew
Kind of true, but I'm wondering if there is more to be gained in Silicon
Valley by deflating and delaying the pop of the bubble a year or longer or by
prompting a string of tech IPOs that will line the pockets of engineers that
can fund many startups several years later after the pop. As someone working
on a startup now and looking to move from bootstrapped stage to seed stage,
I'd rather see the bubble deflate now. Lining the pockets of a Facebook Mafia
and several other "mafias" doesn't do me and others like me a whole lot of
good in the near to medium term.

------
joezydeco
There has to be some sweet, sweet irony in the idea being explored that high-
frequency traders may have caused the NASDAQ breakage.

From an HN post earlier today (<http://www.nanex.net/aqck/3099.html>):

 _"...In brief, the problem was that the system took two extra milliseconds to
calculate the opening price. Because of a decision before to allow continuous
order placement during IPOs, cancellations kept “fitting in between the
raindrops”, in the words of Bob Greifeld, Nasdaq’s chief executive, in the
five milliseconds it was taking to determine a price."_

------
stewartbutler
I still don't understand why Facebook has such an overblown valuation to begin
with. The entire business is a house of cards based on the possibility that it
might make someone else some money someday. Sure, there are some vultures like
Zynga that make out like bandits preying on people with addictive
personalities who shell out cash, and I'm sure there are a few success stories
regarding successful social media advertizing campaigns, but I count the
former as resulting from a lack of morals and the latter as unpredictable
anomalies that happened to tweak something in the hivemind.

I don't perceive any value in Facebook. It is an enormous time sink with
rapidly diminishing returns on time investment, and I feel it is only a matter
of time before the average user experience is more noise than signal. As soon
as that point hits, I can easily see Facebook going the way of MySpace and its
ilk. Facebook has some amazing talent on their team, so maybe someone there
can see a way forward, but as far as I can tell the end game for all social
<insert something here>s appears to be an exodus to a more specialized or
sparsely populated network.

As an outsider my opinion is of limited utility, but I also think that
Facebook is a poison on the tech industry as a whole. I don't see that they
have created anything innovative, useful, or even substantial aside from this
enormous echo chamber. I'm very glad to see that Wall Street isn't gorging on
this IPO, even if it was an accidental fuckup that has spoiled the appetite.
With any luck, this flop will convince investors to put their money onto
things that create something useful.

If anyone has counterpoints, please post them. I write this in frustration,
since I just really don't see where this "105 billion" valuation is coming
from. Where is the potential in Facebook? What is being produced? Why should I
give a damn?

\- They missed the boat if they are trying to compete with the Google
advertizing empire, so that can't be it.

\- They admit that they aren't having the success they hoped for in the mobile
arena.

\- The only thing going for it is that it is the single largest repository on
information about individuals, but that information cannot be ethically or
legally used to its full utility, and most of it is white noise anyhow.

\- The company has repeatedly shown that it doesn't give a damn about its
users or small developers.

What makes this a sound investment?

~~~
olefoo
Facebook has the biggest and most metadata rich direct marketing list ever
created?

Facebook has not even begun to do the things they could with the knowledge
they collect every day. In theory you should be able to go to one of
Facebook's ad sales pages and order an ad that will be shown exactly three
times to every left-handed piano player in Ohio. That you can't do that in the
next ten minutes means that Facebook is leaving money on the table. They don't
need to compete with Google, they need to compete with Experian and
Transunion, or they need to come up with a way to provide a compelling "We
manage your online data for you." offering that a majority of their users
would pay for.

Facebook is, right now in a fairly enviable position; there are many things
that they could potentially become, they are not hamstrung by the need to keep
a cash cow fed and they have enough resources to try multiple experiments at
scale.

I wouldn't count them out as a driving force on the web just yet.

~~~
shock-value
I think you overstate the amount of useful data Facebook has on people. Just
to take your example: Facebook may very well know which state I live in, but
they definitely don't know whether I'm left handed, for example.

On the other hand, Google might very well know this, if, say, I have searched
for left handed golf clubs. Amazon would also know this, if I have bought said
clubs through them. Google and Amazon almost certainly also know which state I
live in (hell Google might know exactly where I am at any given moment if I
have an Android phone).

So really I don't think Facebook is in an enviable position at all compared to
companies like Amazon and Google.

"[...] they need to come up with a way to provide a compelling "We manage your
online data for you." offering that a majority of their users would pay for"

What data? Dropbox and now Google back up all your files and documents, for
FREE, now! How could they compete with this with a free service, let alone a
paid one?

And from a privacy standpoint people trust Facebook far less than Google or
Dropbox. There is an implicit assumption that anything shared with Facebook
will some way or another be shared with one's Facebook friends. (People aren't
ignorant of the way Facebook has tried to trick them into accepting more
liberal privacy settings over the years.) Facebook would have to work very
very hard to change this perception before a data storage service would ever
take off.

~~~
sfall
ok facebook may not know if your left handed, unless your in a left handed
appreciation group, but think about all the information facebook does collect
on you.

where you or others check in, likes, people you chat with, what you chat
about, who tags you in posts and photos and who your with, not to mention all
the tracking facebook does with other sites

~~~
shock-value
Well, it remains to be seen whether that data can actually generate revenue. I
personally don't think it has much potential, at least not compared to the
extremely specific data Google has on everyone, or the purchasing data that
Amazon possesses.

Also, I just don't think people use Facebook the way you describe. Most people
I know don't "check in" wherever they go, nor do they "like" different brands
(except for ones that make them do so in order to be eligible for a contest or
something sketchy like that--I've definitely seen that before). But people do
search on Google for anything and everything, including purchasing decisions.
And of course people do make real purchases on Amazon.

The widgets that Facebook litters over the web which it can use to track
user's browsing habits may be the wild card here, but I'm still skeptical that
this has that much value compared to Google's search data. Plus those widgets
seem to be mostly limited to news sites anyway.

------
SODaniel
What he really should have said:

"We were all betting on millions of small traders shoving $5,000 into this
bubble to push the share price north of $70 so that all the large hedge funds
could cash out and get rich off the backs of the average Joe. A technical
malfunction prohibited us from exiting with 100% profit on intro day and now
we are stuck with a bunch of shares we know are worthless. Dammit, how am I
going to pay for my next summer houses? Damn you NASDAQ!"

------
apaprocki
For context, direct link to NASDAQ rule 4626:

[http://nasdaq.cchwallstreet.com/nasdaq/main/nasdaq-
equityrul...](http://nasdaq.cchwallstreet.com/nasdaq/main/nasdaq-
equityrules/chp_1_1/chp_1_1_4/chp_1_1_4_1/chp_1_1_4_1_8/default.asp#nasdaq-
rule_4626)

EDIT: Also, "NASDAQ Equity Trader Alert #2012-21: NASDAQ Proposes Policy for
Unfilled Orders in the Facebook Inc. (FB) IPO Cross":

<http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-21>

(Their website fails to work in Chrome if you click around -- alert bubble
states only IE and Firefox are supported. Tsk tsk.)

------
brown9-2
This is a crummy headline, the article/interview focuses on problems with
Nasdaq's systems, which is far more interesting than some trader whining about
a loss (which happens every day).

------
_delirium
I suppose as a hedge-fund manager he isn't an investor valued towards
fundamentals, but if he really thinks Facebook should be valued at $60-70,
then I'm not sure some NASDAQ crapping out on one day would change that. If
Facebook turns out to be the next Google in terms of ever-growing profits, its
stock will get to $70 (and higher) as a result anyway.

------
SODaniel
Do we need anymore proof that the concept of 'stock ownership' is irreparably
broken?

Basically his entire point is that because a trading system was delaying
orders for a few hours over $100 BILLION in value was potentially lost?

Yeah, that seems like a sound market with long term owners that trade because
they believe in a company.. Right?

------
donaq
"Then it was holding at $42 for whatever reason. $42. $42. $42."

42 is the answer. He's just not asking the right question. Sorry, couldn't
resist.

------
jroseattle
Given how tight and controlled the shares distribution was by Morgan Stanley,
how eff-ed up the orders to NASDAQ went, and the resulting decline in value
over the last few days -- basically it seems that Wall Street bankers are the
ones who were screwed. All I can say is -- what goes around, comes around.

They finally did it to themselves. For all the complaints about future
regulatory needs, the Street never once considered that it might actually
protect someone they're interested in -- themselves. Trust in the market has
never been lower, thanks to the very folks that benefit from it. Now, not only
are government agencies pissed off and investigating, but the traders are
going to start pointing fingers at each other.

Tsk, tsk Wall Street -- prepare to hunker down. Karma's a bitch, boys. Who
knows, when it's all said and done, maybe Facebook will end up actually
helping Main Street.

------
tibbon
If he admits that it never had a shot, why did he invest in the first place?

Additionally, would we be feeling bad for Facebook if they had underpriced the
IPO and the trader had made 25% profit on day one (and Facebook lost out on a
potential 25% of fundraising)?

~~~
helmut_hed
I'm glad to hear someone say this. Facebook the company did amazingly well on
this transaction. A stock that pops is one that has left money on the table.
FB did the opposite...

------
damncabbage
"Gambler Who Lost $100 Million on Roulette Wheel: Boy Was He Furious"

------
hnwh
Here's my favorite part:

" The question is will NASDAQ do the right thing. They made $400 million last
year and could pay out some."

what the everloving...ffuuu.. I hear whine whine whine from the 99%, and now I
hear whine whine whine from a freakin hedge fund manager who BET $100m on FB.
IS this the state of affairs now? Country full of WHINERS??

~~~
joezydeco
That's the free market! Oh wait, that only applies to when you're winning. You
ask/beg/sue for relief when it goes the opposite way.

------
kzahel
Interesting supposition, that the IPO might have gone down much differently if
somehow NASDAQ had been more prepared or messed something up. But the last
statement - that it could have been trading at $60 and $70, that is hard to
believe.

------
prawn
Blue-collar? I think he means middle-class white-collar. You're not blue-
collar if you're sitting at a desk in an air-conditioned office tapping at
keys in a suit, even if you wish you were paid more and want to complain.

------
joshu
I'm gonna call fake on this.

------
galfarragem
If I would have the money I would buy it for $25 a share. Personally I don't
believe it will go under this. Facebook is a good business, just not by the
price people were told. I don't believe FB will grow much more. A P/E=100
($31) is still too high. $25 corresponds to P/E=80, high enough in my opinion.
I believe that one Buffet wouldn't pay more than P/E=25, around 8 bucks..
Google right now as a P/E=18, Microsoft less than 11..

------
tazzy531
"Anonymous Hedge Fund Manager" -- could be a kid in a dorm room or PM at
SAC... HF Manager is an inflated title...

------
Jach
Yet another screw-up involving "real" money/assets and a "real, tested"
financial system to add to my collection of "See, it's not just Bitcoin's
youth or digital embodiment" rebuttals... I'm looking forward to seeing how
all this plays out. I still think the stock price will go up past $38 over the
next 6 months, but we'll see.

------
thisismyname
Why did't he buy class A shares before the IPO. Idiot.

------
cpatrick
B

------
dos1
I have a hard time drumming up sympathy for these guys. They're mad because
they couldn't make a quick buck. Isn't a hedge fund just gambling? It's high
time Wall St. learns that it's never a good idea to put more in the pot than
you can lose.

The part that is most striking to me is that share price and a company's
intrinsic value are seemingly in different galaxies. This guy is talking about
decisions based on _hype_. I'm floored. Do these guys really trade based on
public opinion?

~~~
veyron
He is complaining because he was sandbagged. He didnt know what his position
was, and NASDAQ and MS both dropped the ball here.

You can vilify hedge funds till kingdom come, but it sounds here that this guy
played by the rules and lost due to a circumstance that he didn't believe was
fair.

If the opposite happened (price spiked) yet the same technology problems
happened, you'd have a bunch of people complaining that they were over or
under filled.

The complaints would not be justified if there was no confusion on his
position.

~~~
AznHisoka
Problem is there's no rules. Noone got in any legal trouble over at NASDAQ.
People do insider trading without getting caught. It's a rigged game.

~~~
marshray
I'd say former Nasdaq chairman Madoff got himself in a little legal trouble,
though perhaps that was after he left Nasdaq.

------
BiWinning
I have a lot of sympathy for those guys, their ability to artificially pump
stock prices brings a lot of value to the economy. Anyways my heart goes out
to them.

------
ohffs
"This should have been a blockbuster."

Karma!

------
smcguinness
Not a pro investor, but can one infer that possibly FB is at an artificial
discount?

