This piece was published in a college newspaper.
During March and April this year, Facebook’s executives went on an elaborate campaign to convince investors that theirs was a company worth owning. Their implied message was that since Facebook has a net positive impact on society, a super-talented workforce, and proven revenue streams, it is a “no-brainer” of an investment. Contrary to that belief, Facebook stock has tanked 52% since its debut in the market in May.
Why am I writing about Facebook and the money markets, combined? My objective is to urge you to consider investing some of your own money in the stock, despite the shoestring student budget, thereby dipping your toes in the ocean of finance, waters you are bound to swim in salaried life. What better way to do so than considering Facebook, a product that you, along with all or most of your friends, are likely active consumers of.
Warren Buffett, the legendary investor billionaire, rightfully preaches that the true value of a business is a function of the value it generates over its lifetime. Understanding this is an absolute prerequisite for ownership.
In FB’s case, it is a vital part of our lives. It has connected us to people of all ages, races and geographies, helped mobilize resources, influenced global politics, etc. We don’t need much convincing about the website’s usefulness.
On the other hand, it has also generated proportionate negative effects. It has subtly, slowly, and counter-intuitively, made a significant proportion of its users, including you and me, relatively miserable. The Atlantic Monthly’s Steve Marche recently hypothesized this in a critically acclaimed cover story in May.
Stretching a tangent off Marche’s argument, the curse of Facebook is that we mindlessly absorb vast amounts of information of people we probably don’t even care about. As a result, two things happen with disturbingly high frequency: we waste a lot of time and, after looking at the apparent happiness in other peoples lives, we feel our own to be inferior.
The outcome, thus, is gradual erosion of self-confidence and as if to make up for that loss, a paradoxical propensity for narcissism (the photos we upload, statuses we update, etc). This is obviously not good for either you, the consumer, or the community at large. Logically, what is not good for the consumer has a good chance of losing consumership.
Knowing this, is Facebook still a good stock to buy? Two apt comparisons may help clear the haze.
First, an extreme stretch, is between Facebook and tobacco manufacturing companies. Both create products that harm consumers in a way that is addictive — one finds it extremely difficult to quit. The tobacco industry has more than survived despite proven health hazards, passionate anti-smoking lobby groups, and severely impeding legislation. In fact, as of 2010, the combined annual profits of six leading global cigarette companies was $35 billion. Therefore, even if one mutes Facebook’s powerful positive effects and blows the negatives ever loudly, not all hope is lost — it might still be the power horse to own.
Contrastingly, a parallel can also be drawn between Facebook and television set manufacturers. Both produce goods that are more or less equally advantageous and disadvantageous to society. Television set makers such as Sony, Samsung, Philips, Akai, etc., are largely profit making companies. But these are businesses with diversified operations — they build other relatively far more useful products such as kitchen appliances, lighting equipment, refrigerators, etc. — that help earn rich dividends for their owners. Facebook is certainly not diversified. In its case, all chips are on the same table on the same bet so much so that the company and the product are non-differentiable. Keep in mind also the historical record of internet companies with short-life spans. The risk is magnificent.
Admittedly, these comparisons are a gross simplification of our world; yet, whatever said and done, you are the end user of Facebook. Know that as long as you feel compelled to log on to the website every night before you sleep and every morning after you wake up, the company cannot be written off, at least not so soon.
So go out there and courageously flirt with the idea of dabbling into the money markets. You might win or lose but this is a fantastic opportunity to relate your own consumption patterns to planning your finances.