[campnic]

It is not the responsibility of the purchaser to know information which is purposefully withheld from them. From the article

> Scott Sweet's multi-billion dollar hedge fund client flipped the stock at $42. His subsequent short made his firm its "largest profit of the year," Sweet said. There's "no way" a retail investor could have known about the lowered projections, unless he or she "had a friend at a multi-billion dollar institution," he added.

Please explain to me, when information is withheld from the purchasers and only specific clients notified as to circumstantial and meaningful changes to the state of the offering, how anyone could ever "know what you're doing?' In fact, Morgan Stanley was actively misleading investors by continuing to adjust the specifications of the offering to make it look better.

Analogy: If an automaker produced a new car which was secretly designed to become worthless (engine would fuse together) after 3 months and only told one rich people not to buy it, would that be fine? What if there come back was 'you could always open the hood and see our computer components which execute after 3 months, its not our fault you don't know what you're doing'

[UVB-76]

My understanding is that the information was not withheld from retail investors; rather, it wasn't actively disseminated to them, and the significance of the information impressed upon them.

The reduced revenue estimates were public information; I recall reading about them myself before the IPO took place. If someone had put me in charge of billions of dollars and told me to take a position on the Facebook IPO, I would have shorted the stock, as many others did.

The crux of the issue is that wealthy institutional investors had analysts at their disposal to point out the revised revenue estimates, and retail investors like Swaminathan didn't. Retail investors were ill-prepared for the IPO, and they got burned.

[campnic]

They're ill prepared to consume the information in the format its delivered (if it is delivered at all). Notice, the revised S-1 doesn't say the amount of the adjustment, you had to receive that from Facebook via another channel. So, it doesn't really have to do with special analyst job knowledge, it has to do with special treatment.

I mean, "actively disseminated" seems a bit generous. They call 3 institutions to let them know meanwhile individual (notice i'm intentionally not saying "retail" because thats become some sort of in-crowd, brow beating, bullshit term for shaming regular, non-hedge fund investors) are left to read smoke signals. Its not that the institutional investors "had analysts at their disposal" its that the systems is built to make sure institutional investors and hedge funds get information others don't.

You can say what you want, but the quote from the hedge fund manager seems much more clear then your opinion, and he's a domain expert who took part in the situation.

>"There's "no way" a retail investor could have known about the lowered projections, unless he or she "had a friend at a multi-billion dollar institution," he added."

[frogpelt]

She shouldn't have taken such a large position in a single stock. As a retail investor, that is stupidity.

As a retail investor, it is your job to find someone who knows what they are doing and can teach you how to invest or manage your investments for you. After that, if you are investing over 10% of your portfolio in one stock you are asking to be broke.

Your car analogy doesn't work because there is really no way to diversify your car whereas there are plenty of ways to avoid this kind of bad decision with your investments.

[ericd]

Regardless of whether you can diversify, fraud and things that resemble insider trading should still be punished.

[mikestew]

The part you quote was not the only warning sign to stay away from the IPO. Just a quick search brought a whole page (published before IPO day) of reasons to stay away: http://www.zdnet.com/blog/feeds/facebook-ipo-risk-factors-an.... Regardless, big IPOs like Facebook are driven by hype, not sound financials. I'd be willing to bet that Facebook could have used 24 point type on their login page stating: "we're losing money hand over fist" and there would still be people lining up to pay $42/share when that bell rang.

Were insiders withholding information? I'm not going to argue one way or another. How do you "know what you're doing"? Start by knowing that insiders would stick it to their own grandmothers if they could get ten cents more per share. But when one's whole strategy is to hope for a first day "pop", that's playing a lottery ticket, not investing (exhibit: Zynga). For one, if one buys after the opening bell, you're not going to profit from the pop, you are the pop.