Financial Indie: The Facebook IPO


This is a special edition of “Financial Indie” focusing on the upcoming Facebook initial public offering (IPO). Financial Indie is a series of articles designed to help writers finance their careers. If you have an investment question, please post it and I’ll try to incorporate it into a future article.

Almost 900 million people, or almost 13 percent of the earth’s population, use Facebook, the world’s top-ranked social media website, to keep in touch with family, friends and business contacts. Millions of companies and individuals have pages dedicated to promoting a product or themselves. Facebook is, in a word, a Juggernaut (or pick another synonym for "huge"). It is far and away the world’s largest social media website, as this infographic shows. For many writers, Facebook is an almost indispensable tool to market their books and build their brands.

Facebook Page

On Friday, May 18, 2012, Facebook will reportedly sell 422 million shares to the public at U.S.$34-$38 per share in an estimated $15-$16 billion offering. When the shares price late Thursday, they will likely be at or near $38. When they begin trading on Friday, it’s a safe bet that the price per share will at least double given how highly anticipated this offering is. I would not be surprised if shares of Facebook (FB) trade at more than $100 per share by early next week.

The May 2011 IPO of LinkedIn (LNKD), a much smaller social media rival, offers a good road map as to what might happen after Facebook goes public. Shares of LinkedIn rose as much as 171 percent in their first day of trading and closed at $94.25, more than 109 percent above the $45 IPO price. The stock went on to peak above $100 per share the following week and now trades above $110. I expect Facebook to perform as well or better, perhaps trading on Friday at a price higher than that of LinkedIn.

If you use Facebook — and chances are you do — you may be wondering whether you should invest in the social media giant after it goes public. You may be familiar with the site and know what it can do and how powerful it is. You may have also heard the investing adage that you should buy what you know. If you know Facebook, does that mean you should invest in it?

The short-term answer is a qualified "no." Although Facebook may be a good investment in the long run, think twice about buying shares immediately after the company goes public. Now, I’m not a naysayer who shies away from hot stocks. I take calculated risks. In August 2004, against the advice of some financially savvy individuals who thought it was overpriced, I purchased shares of Google (GOOG) via Dutch auction for U.S.$85 per share. By late 2008, shares of Google reached almost $715, a sevenfold gain, before dropping to $292 during the 2009 financial crisis. Google now trades at just over $611 per share. Google has been a good investment for me. I have bought and sold Google shares three times and made money each time. Taking a calculated risk on a hot stock can be a lucrative bet if done right.

Facebook’s IPO, however, is nothing like Google’s. When Google went public, it tried to balance the playing field for investors by auctioning off shares to all interested parties, institutional and retail investor alike, at a set price. Facebook is going public via a traditional offering where shares are allocated at face value to a limited number of investors and then sold in the market at whatever price it demands. Unless you’re underwriting the offering or stand to make a mint from going public like co-founder and CEO Mark Zuckerberg, who will make an estimated $20.28 Billion (yes, that’s a "B") when his company goes public, you’ll be at the mercy of the market when you try to buy your shares. You may try to scoop up some after they go public, but you’ll be bidding along with the well-informed masses who are keen to get in on the action. You and a multitude of other bidders who are desperate to get their hands on the stock will pump up the price to a ridiculously high valuation. The higher it goes, the greater the risk that the price will plummet once interest cools.

I believe that in the long run Facebook stock will be a good investment for those who buy shares at the right price. One way to determine whether to purchase shares of Facebook is to wait until after the company releases its first post-IPO quarterly results. Investors will probably bid up the stock before the earnings results are announced. If they’re good, expect the share price to remain stable or go up slightly; if earnings are a disappointment, the price could fall substantially as investors readjust their expectations. Either way, read the analysts’ reports to see whether they consider Facebook a good long-term investment. Let their analyses, which could range from “strong buy” to “sell,” guide your decision whether to invest.

If you absolutely can’t wait to invest in Facebook, consider buying some shares on the "dip," a lull in the price that invariably occurs one or two weeks after IPO. That’s when the initial buyers bail out of the stock to lock in short-term gains, bidding down the price.

I plan to buy some shares of Facebook (FB) in the next few months and hold them for the long term, but I will wait for the ideal moment to buy. I can’t tell you when that will be until after the company goes public. I had an opportunity to purchase privately-held shares of the company on the secondary market in the mid-$30s but opted out. Time will tell whether my "go-slow" approach to Facebook — in contrast to my enthusiastic participation in Google’s IPO — is a good move.

Click here to read the previous edition of Financial Indie.

Disclaimer: I am an accredited private investor. I am not a certified financial planner or investment advisor. The information contained in these articles should not be considered professional investment advice. Use your own discretion when pursuing investment opportunities. For specific investment advice, consult an investment professional.

buythumbM.G. Edwards is a writer of books and stories in the mystery, thriller and science fiction-fantasy genres. He also writes travel adventures. He is founder of Brilliance Equity LLC, an investment firm.

Edwards is author of Kilimanjaro: One Man’s Quest to Go Over the Hill, a non-fiction account of his attempt to summit Mount Kilimanjaro, Africa’s highest mountain. His collection of short stories called Real Dreams: Thirty Years of Short Stories available as an e-book and in print on Amazon.com. He lives in Bangkok, Thailand with his wife Jing and son Alex.

For more books or stories by M.G. Edwards, visit his web site at www.mgedwards.com or his blog, World Adventurers. Contact him at me@mgedwards.com, on Facebook, on Google+, or @m_g_edwards on Twitter.

© 2012 Brilliance Press. All rights reserved. No part of this work may be reproduced or transmitted without the written consent of the author.

Financial Indie: Financing Your Writing Career


Note: “Financial Indie” is a series of articles designed to help writers finance their careers. If you have an investment question, please post it, and I’ll try to incorporate it into a future article.

Financial Indie 1I cheered when I saw my Apple (AAPL) stock jump nine percent on April 25 after another great quarter, earning, perhaps, a better return in one night than I will from a year’s worth of effort to sell books. It made me wonder why so many writers chase book sales to earn a living when so few are successful, as the Wall Street Journal pointed out in an article about the self-publishing industry. While writing is an admirable calling, the economics of the publishing industry suggest that most writers need alternate sources of income to support themselves financially, at least at the outset of their careers.

After I started writing full time, I found no lack of information on how to write and publish books but few resources on how writers, particularly those with limited budgets, could finance their projects and supplement their income. Most articles I’ve read dealing with the financial aspect of writing focused on how to save money or publish on a tight budget. A few suggested doing freelancing and editing jobs. Those are viable ways for would-be authors to make money, but they can also be time consuming. Every minute a writer spends working for someone else is one less minute spent on their own writing projects. There are other ways to earn extra income that take less time and offer a higher rate of return. Investing is one.

Self-publishing a book is not cheap. A writer may pay more than U.S.$1,000 to write, edit, and publish a book (excluding marketing expenses). It costs hundreds of dollars, if not more, to hire a professional editor to polish a manuscript and a designer to create a book cover. An e-book cover can cost as much as U.S.$100; a print version more than $200. The writer will need to purchase an ISBN from W.W. Bowker for each book medium and copyright it. Although Kindle Digital Publishing, Barnes & Noble, and Smashwords publish and distribute e-books for free, publishers usually charge for premium services such as expanded distribution and print-on-demand. Marketing expenses vary. If a writer is good at using social media, they may pay nothing to advertise. Some pay thousands of dollars to hire professional marketers. Those looking to hire an agent and publish through a traditional publishing house should expect to spend money to pitch their book.

What this means is that writing costs money in the short term, and until you earn a respectable income from book sales, you’ll need a way to finance your efforts. For most, it means working full time and writing when you can, but it doesn’t have to be that way. By planning ahead and investing wisely, you can build a stable income that will support your writing and help you move away from depending on a paycheck toward becoming a financially-independent writer.

I’ve been investing for a long time. It took me years to build an investment portfolio that gave me the opportunity to leave my day job. It wasn’t an easy option waiting to launch my writing career, but my patience was rewarded last year when I took the plunge and left my job to write full time. It gives me piece of mind knowing that investments such as Apple will support me until I establish myself as an indie author.

If you don’t have an investment portfolio, you should. How do you get started? Should you buy shares of Apple at more than U.S.$600 a share and hope they reach U.S.$800? No. Chasing returns is a fool’s game. I don’t recommend chasing “hot” stocks, even one as mighty as Apple. You can purchase Apple by owning shares of mutual funds and exchange-traded funds (ETF) that limit your exposure to price swings.

Start by writing a personal investment plan. Determine your financial goals and set a timeline. How much do you want to earn, and how long will it take to achieve it? Look at your budget to see how much you can set aside to build your financial portfolio. Just as you would outline a novel before you write it, you need a plan before you invest.

Figure out how much you can save each month and write it down. Setting aside a small amount in the near term can go a long way to supplementing your income in the long run. Look at your cash flows and decide what discretionary spending you can eliminate – including from your writing budget — and how much you can save. If you stop buying what you don’t need, how much money will you have to grow?

See if you can set aside about U.S.$100 per month. In future articles, we’ll use this as a base to help you build your portfolio.

Click here to read the next article in the “Financial Indie” series.

buythumbM.G. Edwards is a writer of books and stories in the mystery, thriller and science fiction-fantasy genres. He also writes travel adventures. He is founder of Brilliance Equity LLC, an investment firm.

Edwards is author of Kilimanjaro: One Man’s Quest to Go Over the Hill, a non-fiction account of his attempt to summit Mount Kilimanjaro, Africa’s highest mountain. His collection of short stories called Real Dreams: Thirty Years of Short Stories available as an e-book and in print on Amazon.com. He lives in Bangkok, Thailand with his wife Jing and son Alex.

For more books or stories by M.G. Edwards, visit his web site at www.mgedwards.com or his blog, World Adventurers. Contact him at me@mgedwards.com, on Facebook, on Google+, or @m_g_edwards on Twitter.

© 2012 Brilliance Press. All rights reserved. No part of this work may be reproduced or transmitted without the written consent of the author.

Resolve to Make 2012 A Great Year


Happy New Year! How did you enjoy ringing in the new year? Did you wake up feeling great or with a literal or proverbial hangover? Now that the celebrating has subsided, are you ready for 2012?

This year may be a momentous one with some major milestones on the calendar, from the Chinese Year of the Dragon to the end of the Mayan calendar. Some dates are already set, such as the Expo in Yeosu, South Korea (May 12-August 12), the Summer Olympics in London (July 27-August 12), not to mention the landing of the Curiosity rover on Mars in August, and, barring a new framework agreement, the end of the Kyoto Protocol on December 31. Some major events this year are already known, while others are not. No one really knows what will happen in places such as North Korea, where newly-installed “supreme commander” Kim Jong Un takes over as leader; possible sanctions and threats to blockade the Strait of Hormuz; unrest in Syria and other protests sparked by the Arab Spring; the European financial crisis; protests in Russia; potential economic slowdown in China; general elections in the United States and in dozens of other countries worldwide. No one knows what will happen. On December 21, 2012, when the Mayans purportedly predicted the end of the world will occur, we’ll look back at the year 2012, analyze the fall out, and, hopefully, be around to tell about it on December 22. Until then, we can only speculate about the future.

There’s no reason to worry about 2012. We can only control what falls in our own sphere of influence, which for most people amounts to whatever affects us directly. What do you have planned for yourself this year? Have you considered making some life changes? I believe in making and achieving goals, and I consider New Year’s resolutions worthwhile. Realistic resolutions can help frame a goal and give you a specific objective to achieve. You may not achieve everything you set out to do in a given year, but if you achieve at least one resolution or make progress toward one, you’re better off than you were. I met half the resolutions I set for myself in 2011 and set some new targets to achieve in 2012. The ones I did not achieve will be carried over to this year. They range from publishing a new book to losing weight to strengthening my faith to learning the guitar. Some will be easier than others, but I resolve to tackle them all in the next 12 months.

Even if you’re not the type of person to make New Year’s resolutions, there’s one goal you can resolve to achieve this year. Make this year a better year than 2011. Make it the best it can be. It doesn’t matter if you had a good or bad year last year. Life can always be better. Resolve to make 2012 a great year.

Vote Now! MarketWatch’s "Next Great Investing Columnist" Contest


VOTE NOW!  I entered an article in MarketWatch’s "Next Great Investing Columnist" contest.  Vote for it by clicking on the Facebook "Like" button.  There are many great entries, and the top vote getters will head to a second round with a third and final round in November. The winner gets a six month contract to write as a columnist for MarketWatch, an affiliate of the Wall Street Journal.

Here’s the full link:  http://blogs.marketwatch.com/great-columnist/2011/10/19/finding-shelter-in-financial-storms/

The article draws heavily from my experiences in Thailand in the midst of flooding. The floods are a good analogy for the recent swings in the world’s financial markets, with both flood victims and investors looking for shelter. The article offers some concrete suggestions to investors on how they can stay afloat during financial turbulence.

Thanks for reading my article and for your support!

Sound Investment Principles


Some people have asked me about my investment strategy.  Here are some investment principles that have paid dividends.

  1. Buy what you know.  What companies or sectors do you know?  What products do you use?  Are they good companies with promising futures and good growth prospects?  If so, buy some of their shares.  But do your homework first.  Buyer beware.
  2. Don’t try to time the market, but know the season.  It’s folly to jump in and out of the market when you think it’s going up and down because sometimes you win, sometimes you lose.  It’s better to look at the long term and invest accordingly.  What’s in store for this year or the next few years?  Do you believe the market do well this year?  What do the experts say?  If you have a broker, what does he or she say?  Going with your gut instinct is often the best check and balance to investing.  If it sounds too good to be true, it probably is.  Likewise, the situation never seems to be as dire as some predict.
  3. Don’t spread yourself too thin…concentrate.   Don’t try to track too many stocks or funds.  Pick a few (up to 10-12) that you like and focus on them.  Study them and look at their fundamentals such as P/E ratio and EPS.  Professionals don’t try to track too many stocks, and you shouldn’t either.  Add or remove companies as they under- or outperform.
  4. Don’t sell too high or too low.  Since you can’t time the market, set upper and lower price limits to trigger buys and sells.  Don’t ride a stock to delisting; get out while you can still recover some cash.  Don’t wait for an investment to reach an unlikely price target.  Better to get out while you’re ahead.
  5. Watch those fees.  If you don’t feel like a savvy investor, read the fine print before hiring a broker or buying a fund.  Sometimes the fees can be in excess of 2% of the total principal, meaning that your broker would have to outperform you by at least that much to justify the fee.  Sometimes doing it yourself – and employing available investing tools such as stock and fund screeners – yields better returns (or fewer losses) than hiring someone to do it for you.  If you feel more comfortable using a broker, ask them for their fee structure up front.  Some will charge a fee to open and close account as well as monthly wrap fees.  These can be palatable if your broker offers a low fee structure (1% or less) or handles your account carefully. 
  6. Move past the basics of investing.  The smartest investors don’t put all their eggs in one basket.  Consider real estate, a small business, options/margin trading, micro-loans, IPOs and private equity investments to diversify your portfolio.  Prosper.com lets you offer higher interest loans to Americans, and Kivu.com does the same for international micro-loans.  Try the IPO market.  W.R. Hambrecht offers periodic open IPOs.  Try angel investing or secondary shares of privately held companies on a site such as SharesPost.com or SecondMarket.com.  MergerNetwork.com offers real estate and businesses for sale around the world.  Try investing in foreign markets or currency trading.  InteractiveBrokers.com facilitates trades in foreign exchanges and currencies.  (Disclaimer:  I have investments through some of these sites but have no personal financial stake in them.)
  7. Make investing a habit.  These are several basic investment strategies you can use to improve your financial situation by investing just $50 per month (every little bit helps):
  • Open a Roth IRA and invest in it as an after-tax retirement benefit;
  • Increase your 401(k) withholding until it hits the annual ceiling;
  • Open 529 accounts for your children and set the money aside for future college expenses;
  • Set the money aside in a Health Savings Account (HAS) or Flexible Spending Account (FSA) to pay for anticipated expenses tax free; and/or
  • Pay an additional $50/month on any credit card debt and/or mortgage.

What you should NOT do:

  • Spend the money on depreciable fixed assets (aka “stuff”).
  • Spend it on dining out, entertainment, or any expense that offers a one-time benefit.

Investment Principles and Strategies


Occasionally I chat with others about investment principles and strategies.  Here are some of my investment philosophies.  They’re not original ideas, but they work for me.  They continue to evolve.

1. Buy what you know.

What do you know? What products do you use? Are they good companies with promising futures and good growth prospects? If so, buy some of their shares. But do your homework first.

2. Don’t try to time the market, but know the season.

It’s folly to jump in and out of the market when you think it’s going up and down. It’s better to look at the long term and invest accordingly. What’s in store for 2010? Will the market do as well in 2010 as it did in 2009? Not likely. The January swoon will get better in February or March, but with all the structural issues the U.S. is dealing with now, it’s better to either put money in conservative investments or look to the global markets for gains. Although I could be wrong in the short term, my long-term view has a much better chance of being correct.

3. Don’t spread yourself too thin…concentrate.

Don’t try to track too many stocks or funds. Pick a few (up to 10-12) that you like and focus on them. Study them and look at their fundamentals. Professionals don’t try to track too many stocks, and you shouldn’t either. Add or remove companies as they under- or outperform.

4. Watch those fees.

If you don’t feel like a savvy investor, be sure to read the fine print before hiring a broker or buying a fund. Sometimes the fees can be in excess of 2% of the total principal, meaning that your broker would have to outperform you by at least that much. Sometimes doing it yourself – and employing available investing tools such as stock and fund screeners – yields better returns (or fewer losses) than hiring someone to do it for you.

5. Move past the basics of investing.

The smartest investors don’t put all their eggs in one basket. Consider real estate – the next two years will be a good time to buy a rental property. Consider options/margin trading. Consider micro-loans. Prosper.com lets you offer higher interest loans to Americans, and Kivu.com does the same for international micro-loans. Try the IPO market. W.R. Hambrecht offers periodic open IPOs. Try angel investing or secondary shares of privately held companies. Try investing in foreign markets or currency trading. Interactive Brokers facilitates trades in foreign exchanges and currencies.

Investment Strategies

These are several basic investment strategies you can use to improve your financial situation on $50 per month:

1. Open a Roth IRA and invest in it as an after-tax retirement benefit;

2. Increase your 401(k) withholding until it hits the $15,000/year ceiling;

3. Open 529 accounts for your children and set the money aside for future college expenses;

4. Set the money aside in a Health Savings Account; and/or

5. Pay an additional $50/month on any credit card debt and/or mortgage.

What you should NOT do:

1. Spend the money on depreciable fixed assets (aka “stuff”).

2. Spend it on dining out, entertainment, or any expense that offers a one-time benefit.