Cynicism and the Facebook IPO

[cthulu2016]

Irrational asset price increases tend to accelerate after most thoughtful people have figured out it's a scam/delusion/bubble. Seriously... an asset class will go up sharply until it has outrun all sense and then go ballistic... straight up before crashing. And some of the buyers of the grossly over-priced or outright worthless asset will be folks who already know very well the thing is junk.

Most folks are not usually hep to bubbles until the bubble is already out of control. People panic because they missed out on the next big thing and pile in. And the "smart money" then sells into that last sucker move.

There is a thing called "the greater fool theory" that says, accurately, that it doesn't matter if thing X is worthless junk. All that matters if whether somebody will pay you more for it then you paid to get it. It is not foolish to buy as long as there is an even greater fool in the wings.

Here is what I am wondering... is this process all so familiar now that everything about Facebook is a greater fool play?

1) Imagine a population of people who all, every single one of them, think Facebook stock is crap.
2) Imagine that those same people believe that somebody else thinks it is valuable.

As long as everyone believes there are greater fools a piece of dog crap could, theoretically, sell for a billion dollars. (In that case the smart money are the real fools. They are smart enough to know crap is worthless, but foolish in thinking other people feel differently.)

So how would the Facebook IPO behave in that population? Pretty much as in real life.

The assumption is that Facebook will go up a zillion percent on day one. Then a bunch of fools will see on the news that Facebook went up a zillion percent and will say, "I better get me some Facebook."

But the next wave of fools didn't show up, it seems. And once faith was shaken in the existence of the army of fools then the smart money runs for the exits.


The Dutch Tulip mania seems a good example of a cynical bubble. Unlike internet stocks or electronic stocks or exploring/exploiting the New World it is hard to even imagine what narrative a person could fantasize about where the tulip bulbs could become actually worth so much money for any use or purpose. (Like planting them in the ground to make flowers.)

But if people are paying the prices then the monetary value is real. For a while.

[DJ13]

1. I think Facebook became a proxy for a market many see as one big bubble

They look around and see little difference in the lives of the average person (the 99%), prices higher on most things, jobs still arent available in any significant numbers, wages actually lower than when the recession hit, and then they see a stock market that has doubled off the lows the last two years and remember the tech bubble, and how were all worse off now than back when that popped.

Its hard to think the market has any rationality at this point.