Friday, June 8, 2012

Why I Am Buying Facebook

I opened Facebook (FB) position today. This decision will probably draw a lot of negative comments. Well, the more the better...

Watched this IPO from the beginning. I absolutely agree with Cody Willard (Why I'm buying Facebook right now). Let's review all arguments again.

1. IPO was a disaster. I agree with Cody and disagree with the most. IPO was a great success. Stock fell below IPO price? That just means that company, not speculators, received money.

2. Nobody wants this stock anymore. Wrong! Most tech oriented funds just have to buy it. Stock was depressed because speculators had to close positions quickly. Yes, it might fall even lower. I will buy more then.

3. Company doesn't have good earnings. This argument is ridiculous. Company does have real earnings. Future P/E 40 for a growing company is low, not high. If you subtract 8 dollars of cash from the price, future P/E is about 28!

4. Company doesn't have any foothold in China. Do you really think it's a problem? More like opportunity.

5. Everybody hates it! That's exactly the reason to buy.

Of course, there is a lot of risk. Somebody might invent something better. Management might screw up execution. Many bad things can happen to a new and growing company. That's the risk I'm willing to take.

I also sold July $25 puts for $1.20. If price is falling, I'm going to buy $FB for 23.80.

Disclosure: I am long FB.

Additional disclosure: Positions can change any time

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