The “Facebook cliff”

PriceMetrix examined data on retail investors in the Facebook IPO, identifying several broad trends:

Mainly affluent households had access to the IPO, through their advisors. A proportion of this group quickly sold, making a modest gain.

Read: What is Facebook really worth?

Those who sold on the first day of trading received the bulk of the gains to be realized from Facebook stock (to date).

Once trading in Facebook stock officially began, a second group of less affluent households (who likely did not have access to the IPO) entered the market at prices above the IPO price. A small proportion of this group elected to sell when confronted with Facebook’s declining share price in the ensuing weeks, incurring sizeable losses as a result.

Read: Why did Facebook fail?

A third group, less affluent than the IPO subscribers but more affluent than the early post-IPO buyers, entered the market later and at prices below the IPO price. This group overwhelmingly continues to hold their Facebook shares. In total, 36% of the shares bought have been sold, 57% for average gains of 6.4% and 42% for average losses of -17.4%.

Read: Facebook IPO provides lessons for Canadians

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.