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Hedge Funder Who Bet $100 Million On Facebook IPO Is Furious

125 points by xtiy 14y ago

DigitalSea 14y ago
My favourite part was when the hedge fund manager called himself "blue collar". I couldn't care about the rest, boo hoo there were technical issues, NASDAQ had a clause covering them in the event of technical issues and Facebook stock didn't balloon into the $60 or $70 per share price range. I don't feel one ounce of sympathy for anyone who can freely gamble away $100M then have the audacity to complain about it, if the situation were reversed the hedge fund manager wouldn't care if I lost out because I invested $100M into Facebook stock either. Don't get me started on the fact this disillusioned guy thinks the stock should have been in the $70+ range. It doesn't sound like the guy should be handling money full stop, he obviously has a lack of understanding when it comes to the stock market.
- sp332 14y ago
  The hedge fund has $100MM, that doesn't mean he has $100MM. He's managing other people's money, he's not "freely gambling" with it.
  - deleted 14y ago
    [deleted]
  - jzycrzy 14y ago
    Just to add to this comment. $100MM at 2% management fees, leaves $2MM for expenses (audit, legal, accounting), officers and staff. He probably makes most of his annual take in a performance bonus, which this 'screw up' probably reduced. FWIW, my favorite part showing how these short term guys think: "we heard rumors there was a market in Europe for $70/share" fast forward to "this thing should have been trading in the $60 to $70 range." Based on a rumor from another continent.
- antonioevans 14y ago
  To plenty of us in the tech field a successful Facebook IPO would have opened up a path for other tech business to IPO in the near term. On top of that a successful IPO would have opened up some funding in our hacker space (Paypal Mafia/Google Mafia..etc). We want them to be successful.
  - malandrew 14y ago
    Kind of true, but I'm wondering if there is more to be gained in Silicon Valley by deflating and delaying the pop of the bubble a year or longer or by prompting a string of tech IPOs that will line the pockets of engineers that can fund many startups several years later after the pop. As someone working on a startup now and looking to move from bootstrapped stage to seed stage, I'd rather see the bubble deflate now. Lining the pockets of a Facebook Mafia and several other "mafias" doesn't do me and others like me a whole lot of good in the near to medium term.
  - brazzy 14y ago
    Seems to me it's a very good thing none of that happened. The VC scene was already pretty damn irrational and dysfuntional, and in sore need of some unpleasant reality injection.
- waterlesscloud 14y ago
  The interesting allegation here is that NASDAQ required traders to dump a bunch of stock on Monday morning, which depressed the price artificially. We'll never know the truth of it, but if it happened it's unfortunate.
- hasker 14y ago
  Read the article. He is complaining about how the casino operated, not how he bet. One of the most crucial piecing of information in professional trading is knowing your exact risk position. NASDAQ apparently was unable to confirm whether trades were "done" or not. Having a uncertain $100mm exposure to something really scares a trader, since he cannot hedge it. This is the kind of situation where telephone hand pieces get snapped in half, and holes get punches through LCD screens. The flash crash a few years ago created a similar situation where the exchanges decided to cancel certain trades at their own discretion. NASDAQ really botched the IPO. Trading was supposed to open at 11am, and it appeared to me it took until 11:20am to actually start. Problems persisted even after FB opened. They won the listing over the NYSE on the promise this sort of thing would not happen. Mega IPOs always seem to have a lot of drama. GOOG had a lot of stupidity with some interview Larry or Sergey did with Playboy, and I think a few other issues. Finally FB got to the end of the long road to going public.
  - lotharbot 14y ago
    > "He is complaining about how the casino operated, not how he bet." This is exactly right. I have no sympathy for a gambler who gets beat because he made the wrong read or the wrong play. I have no sympathy for a trader who loses money because he was wrong about the market. But when a gambler gets beat because the casino kept misdealing the cards, or a trader loses big money because the exchange botched the trade, he has every right to complain. The system is supposed to operate according to certain rules, which failed in this case and cost some people a lot of money. Maybe they would've lost the money anyway, but that's something that should be determined by the market, not by a NASDAQ glitch.
    - DigitalSea 14y ago
      As the article points out, technical glitches are covered in the rules. When you invest you accept these rules, if the hedge fund manager has a problem with the rules then he should not be investing. Therefore no rules were broken as the article points out, it's a stock exchange they aren't dumb they know how to cover their bases (they're bankers after all). He isn't the only one affected by this situation. The bottom line is he would have lost money regardless of NASDAQ's handling of the situation, Facebook stock flopped. This guy needs to cut his losses and take it like a man, he isn't the only one who invested in Facebook stock and lost out, I wouldn't rule out others losing larger sums of money too ashamed to even anonymously come forward. It might sound spiteful, but it's life. Unexpected things happen like these and there's nothing that can be done. I'm sure the SEC will be investigating everything shortly anyway, so we'll see what happens (if any action is taken, which is possible).
BiWinning 14y ago
I have a lot of sympathy for those guys, their ability to artificially pump stock prices brings a lot of value to the economy. Anyways my heart goes out to them.
donaq 14y ago
"Then it was holding at $42 for whatever reason. $42. $42. $42." 42 is the answer. He's just not asking the right question. Sorry, couldn't resist.
dos1 14y ago
I have a hard time drumming up sympathy for these guys. They're mad because they couldn't make a quick buck. Isn't a hedge fund just gambling? It's high time Wall St. learns that it's never a good idea to put more in the pot than you can lose. The part that is most striking to me is that share price and a company's intrinsic value are seemingly in different galaxies. This guy is talking about decisions based on hype. I'm floored. Do these guys really trade based on public opinion?
- sp332 14y ago
  You go to Vegas and put $5,000 on the roulette wheel and it breaks, it's like, hold on, I'm not going to do that. I like this analogy. You want to play the market, fine. But if NASDAQ breaks, is that really part of the game?
  - zackzackzack 14y ago
    If they signed a legally binding agreement, then I imagine NASDAQ breaking would be part of the game.
    - veyron 14y ago
      The contracts absolve NASDAQ of liability in calamities of this nature (my business was almost destroyed -- had to take a 250K loss -- thanks to an order entry server failure), but it doesn't make you feel better. Having had something similar happen to me, I know how much it sucks. You accept its a possibility, but don't really believe it will happen until it does.
      - joering2 14y ago
        I am sorry about you loss. The frustration must be tremendous, especially since we know the fault was so clearly on their system's part. How can you make $400MM (last year) and yet cannot come up with robust bullet proof transactional system, no idea.. Ain't that vicious on their part that the rules of game change when there is no other place to "gamble". Bet this 2648 (or whatever rule # it is) would not stand a chance when NASDAQ just started, but now it is "play with us or don't play at all". Ps. Do you think there is any business behind being a "trade insurer"? Similar to car accidents, every high volume trader would be given an options to be insured up to X amount by paying substantially smaller Y fee.
zackzackzack 14y ago
"Anonymous Hedge Fund Manager: No doubt. But this should have been a blockbuster. This should have traded to $60 or $70. This should have launched a wave of tech IPOs." I think Facebook just deflated the tech IPO bubble for a year or so. No average Joe is going to invest, because, "Well fuck, if Facebook didn't explode, why would any other new tech company? No thanks." The bubble is still there, but it isn't looking like it will be rapidly expanding like people expected it to after the fb IPO.
- waterlesscloud 14y ago
  I think it's longer than a year. It'll take something really huge to overcome "Well, if Facebook couldn't break out, who can?" That will ripple back through all investment phases since the ipo is the dream payoff day for many investment rounds.
  - malandrew 14y ago
    I think it's the kind of attenuation that the market needs right now because it basically discourages investors that buy in based on hype instead of intrinsic value.
  - tibbon 14y ago
    I agree with you. For all the startups that wanted to be the "Facebook of X"... if Facebook couldn't do it, why could they?
    - malandrew 14y ago
      Mos' def. They now have a reason to start looking at a revenue sources that aren't based on ads. Every time I hear about a startup trying to shoe in an ad-based business model where you could make money selling directly or via high value intent-based referral fees to complementary businesses I cringe a bit. A lot of the time ads as a revenue stream are a total cop out that demonstrate a total lack of business sense an ability to spot value. Google is successful in ads because they are a generalist intent capture platform. Unless your business also happens to capture generalist intent, you should be thinking about referral revenue based on focused intents.
hnwh 14y ago
Here's my favorite part: " The question is will NASDAQ do the right thing. They made $400 million last year and could pay out some." what the everloving...ffuuu.. I hear whine whine whine from the 99%, and now I hear whine whine whine from a freakin hedge fund manager who BET $100m on FB. IS this the state of affairs now? Country full of WHINERS??
- joezydeco 14y ago
  That's the free market! Oh wait, that only applies to when you're winning. You ask/beg/sue for relief when it goes the opposite way.
brown9-2 14y ago
This is a crummy headline, the article/interview focuses on problems with Nasdaq's systems, which is far more interesting than some trader whining about a loss (which happens every day).
tibbon 14y ago
If he admits that it never had a shot, why did he invest in the first place? Additionally, would we be feeling bad for Facebook if they had underpriced the IPO and the trader had made 25% profit on day one (and Facebook lost out on a potential 25% of fundraising)?
- helmut_hed 14y ago
  I'm glad to hear someone say this. Facebook the company did amazingly well on this transaction. A stock that pops is one that has left money on the table. FB did the opposite...
joezydeco 14y ago
There has to be some sweet, sweet irony in the idea being explored that high-frequency traders may have caused the NASDAQ breakage. From an HN post earlier today (http://www.nanex.net/aqck/3099.html http://www.nanex.net/aqck/3099.html): "...In brief, the problem was that the system took two extra milliseconds to calculate the opening price. Because of a decision before to allow continuous order placement during IPOs, cancellations kept “fitting in between the raindrops”, in the words of Bob Greifeld, Nasdaq’s chief executive, in the five milliseconds it was taking to determine a price."
damncabbage 14y ago
"Gambler Who Lost $100 Million on Roulette Wheel: Boy Was He Furious"
_delirium 14y ago
I suppose as a hedge-fund manager he isn't an investor valued towards fundamentals, but if he really thinks Facebook should be valued at $60-70, then I'm not sure some NASDAQ crapping out on one day would change that. If Facebook turns out to be the next Google in terms of ever-growing profits, its stock will get to $70 (and higher) as a result anyway.
apaprocki 14y ago
For context, direct link to NASDAQ rule 4626: http://nasdaq.cchwallstreet.com/nasdaq/main/nasdaq-equityrules/chp_1_1/chp_1_1_4/chp_1_1_4_1/chp_1_1_4_1_8/default.asp#nasdaq-rule_4626 http://nasdaq.cchwallstreet.com/nasdaq/main/nasdaq-equityrul... EDIT: Also, "NASDAQ Equity Trader Alert #2012-21: NASDAQ Proposes Policy for Unfilled Orders in the Facebook Inc. (FB) IPO Cross": http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-21 http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-21 (Their website fails to work in Chrome if you click around -- alert bubble states only IE and Firefox are supported. Tsk tsk.)
ohffs 14y ago
"This should have been a blockbuster." Karma!
kzahel 14y ago
Interesting supposition, that the IPO might have gone down much differently if somehow NASDAQ had been more prepared or messed something up. But the last statement - that it could have been trading at $60 and $70, that is hard to believe.
powera 14y ago
This guy is a moron. Anybody who believes the stock would be at $70 if "the market" worked better doesn't understand how markets work in theory or practice. If there are people who really believe the stock is worth $70, there would have been buyers the past two days. Expecting "hype" around the IPO to support ONE HUNDRED BILLION dollars of extra valuation is beyond stupid.
- samstave 14y ago
  I am imagining this "hedge fund manager" as some guy who had a fair amount of wealth - but a greater, wealthier, social network. He spent some time pulling from this network to develop a fund, which he would manage to make all his friends rich, himself even richer. He has been frothing for this opportunity, ever since he missed the Google boat. At the time of the goog ipo, he was a lowly broker with little funds to leverage. Since then he has been viciously ambitious. He has built a name for himself and a powerful, if flawed, circle of acquaintances. He was successful in frothing up his circle, convincing them that he could make an FB focused super fund and make them a killing! He gathered up $200MM from his network and put a crazy bet on the stock. He lost - all his credibility gone, a loss which was thought to be a sure thing. He is ruined! Especially since now that the loss is here - it will be revealed that he committed many millions to purchases on this expected cash cow! His bills are due, and he owes $30MM TOMORROW for everything he used funds from his network's input to pre-buy! HE IS FUCKED! But, he has a really nice yacht to attempt to flee to Bermuda on...
- nl 14y ago
  Using words like "moron" is pretty strong. There are a large number of historical precedents to back up that belief. Ignoring well-known examples like Amazon (which even today trades well above where it "should"[1]), there are other examples like "The Globe", which had a first-day gain of 249%[2] More recently, Splunk popped 83%[3]. He addressed the there would have been buyers the past two days thing, too: It never stood a shot. If there was any enthusiasm for this deal, that got wiped out. Think about a guy who was going to put five grand on this. You go to Vegas and put $5,000 on the roulette wheel and it breaks, it's like, hold on, I'm not going to do that. Suddenly you're like this is Wall Street and I hate Wall Street. [1] http://finance.yahoo.com/q?s=AMZN http://finance.yahoo.com/q?s=AMZN - AMZN has a P/E ratio of 177. Compare that to EBAY: 15, GOOG: 18 [2] http://news.cnet.com/2100-1023-217913.html http://news.cnet.com/2100-1023-217913.html [3] http://online.wsj.com/article/BT-CO-20120419-713258.html http://online.wsj.com/article/BT-CO-20120419-713258.html
thisismyname 14y ago
Why did't he buy class A shares before the IPO. Idiot.
nl 14y ago
I love this story on so many levels. Firstly there is the irony of a "blue collar hedge fund manager" There's the fact the lack of an IPO bump means Facebook equity holders are the people who made money out of it, instead of the investment banks buying at the opening and hoping to sell at the bump price. Then there's the whole "HN thinks Facebook is worthless and has the satisfaction of seeing the stock drop on the opening day." thing. Now it turns out all the self-congratulation over people's "insightful analysis" was probably misplaced - Facebook may or may not be overvalued, but the stock price probably doesn't reflect the market consensus yet. Finally, in an ironic twist Shakespeare would have been proud of it turns out that it was probably the NASDAQ's computer system that meant Facebook missed an IPO bump. Silicon Valley loves talking about how Wall St over-hyped IPOs during the dot-com bubble and blaming it for the lack of a significant IPO exit strategy since. Now it was a computer system that failed Silicon Valley's great hope of reigniting the IPO market.
- nextstep 14y ago
  You should adapt this for the stage!
  - wr1472 14y ago
    A sequel to the Social Network?
- to3m 14y ago
  This particular man presumably understands class as the English do - that in many cases, it's as much (or more) to do with your upbringing and background as it is to do with your current social status. Perhaps "blue collar" isn't quite the term for this, though. I can't imagine there are many blue collar workers in a hedge fund. Maybe the cleaners...
  - ticks 14y ago
    I guess he's trying to say that he feels like he shouldn't be there, a pretender to the throne. Happens a lot when you are working class and join a department/division that attracts people from more affluent families.
joshu 14y ago
I'm gonna call fake on this.
stewartbutler 14y ago
I still don't understand why Facebook has such an overblown valuation to begin with. The entire business is a house of cards based on the possibility that it might make someone else some money someday. Sure, there are some vultures like Zynga that make out like bandits preying on people with addictive personalities who shell out cash, and I'm sure there are a few success stories regarding successful social media advertizing campaigns, but I count the former as resulting from a lack of morals and the latter as unpredictable anomalies that happened to tweak something in the hivemind. I don't perceive any value in Facebook. It is an enormous time sink with rapidly diminishing returns on time investment, and I feel it is only a matter of time before the average user experience is more noise than signal. As soon as that point hits, I can easily see Facebook going the way of MySpace and its ilk. Facebook has some amazing talent on their team, so maybe someone there can see a way forward, but as far as I can tell the end game for all social <insert something here>s appears to be an exodus to a more specialized or sparsely populated network. As an outsider my opinion is of limited utility, but I also think that Facebook is a poison on the tech industry as a whole. I don't see that they have created anything innovative, useful, or even substantial aside from this enormous echo chamber. I'm very glad to see that Wall Street isn't gorging on this IPO, even if it was an accidental fuckup that has spoiled the appetite. With any luck, this flop will convince investors to put their money onto things that create something useful. If anyone has counterpoints, please post them. I write this in frustration, since I just really don't see where this "105 billion" valuation is coming from. Where is the potential in Facebook? What is being produced? Why should I give a damn? - They missed the boat if they are trying to compete with the Google advertizing empire, so that can't be it. - They admit that they aren't having the success they hoped for in the mobile arena. - The only thing going for it is that it is the single largest repository on information about individuals, but that information cannot be ethically or legally used to its full utility, and most of it is white noise anyhow. - The company has repeatedly shown that it doesn't give a damn about its users or small developers. What makes this a sound investment?
- saulrh 14y ago
  You're missing a point there. The information may be mostly white noise, but with that much data, even filtered by laws and ethics, statistics are powerful. You are not the customer; neither are the developers. It's Target. http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/ http://www.forbes.com/sites/kashmirhill/2012/02/16/how-targe...
dangero 14y ago
I bought Facebook with a limit order when it went on sale to the general public last Friday, and I can confirm it was a terrible experience. Here's basically what happened: I put in a limit order through tdameritrade the night before with a max price of $44. I'm in front of the computer that morning to watch my order when the IPO starts. The price spikes up to 45, then treads around low 40s. I refresh my account. My limit order has not gone through. I wait AN HOUR. Still, it has not gone through so I cancel it. Now it says, "Pending Cancellation." It remains "Pending Cancellation" for over an hour, so I try to call tdameritrade, but their lines are completely backed up with calls. Finally, the system suddenly reports that my order was accepted and I bought Facebook at 42. It's only an hour from market close by the time I see this. What this meant for me and most everyone else was that I was locked out of the market for the first 2 hours after IPO and my assets were frozen. I could neither buy nor sell. I don't think we can really know what the impact of this was on the market, but it certainly didn't instill short term confidence in the Facebook IPO and I think it definitely decreased the volume on the stock. I'm not going to defend everything the guy said, but I do believe that NASDAQ botched the IPO badly and it may be a few months before we know what the market really values Facebook at. There may even be permanent damage done to Facebook's reputation.
- BoldAsAnEagle 14y ago
  I think this was done on purpose by Wall Street as a punishment for Facebook not licking their ass as most other companies.
- grey-area 14y ago
  There may even be permanent damage done to Facebook's reputation. Any permanent damage done to Facebook's reputation will purely be because they overvalued the IPO, overstated earnings, bought out other internet companies at inflated valuations pre-IPO, and burned those who bought at the inflated initial valuation. As to whether the trading system damaged confidence in Facebook - it's not always possible to get the deal you want on a stock-market, and anyone placing a limit order should know that they might get a vastly different price than the one they expected - there are disclaimers in trading systems specifically for this situation. Trading is stopped all the time by circuit breakers (see Zynga that same day for example), depends on both willing buyers and sellers at a given price, and of course depends on the trading systems not going down for whatever reason. If you're buying as a long term investment of a stock that you believe in this won't affect you. If you're speculating, particularly short-term, you should recognise that the casino is rigged against small investors - the stock market is not, and never will be, rational, fair, or efficient; it's just the least worst option we have. However I don't believe that lack of access to the stock or prices on the first day of trading has anything to do with the current price ($31 last time I looked) - that's just down to a bubble deflating and confidence evaporating as people start asking questions about the true valuation. Frankly I think this sort of talk of the technical issues is really a way of avoiding talking about why people bought Facebook at the initial irrational PE/price which (IMHO) has farther to fall before it becomes a reasonable valuation based on their projected earnings. That's the real issue here, but one which raises hard questions about the very high valuation of many social media companies like Instagram, Facebook etc.
SODaniel 14y ago
Do we need anymore proof that the concept of 'stock ownership' is irreparably broken? Basically his entire point is that because a trading system was delaying orders for a few hours over $100 BILLION in value was potentially lost? Yeah, that seems like a sound market with long term owners that trade because they believe in a company.. Right?
SODaniel 14y ago
What he really should have said: "We were all betting on millions of small traders shoving $5,000 into this bubble to push the share price north of $70 so that all the large hedge funds could cash out and get rich off the backs of the average Joe. A technical malfunction prohibited us from exiting with 100% profit on intro day and now we are stuck with a bunch of shares we know are worthless. Dammit, how am I going to pay for my next summer houses? Damn you NASDAQ!"
tazzy531 14y ago
"Anonymous Hedge Fund Manager" -- could be a kid in a dorm room or PM at SAC... HF Manager is an inflated title...
jroseattle 14y ago
Given how tight and controlled the shares distribution was by Morgan Stanley, how eff-ed up the orders to NASDAQ went, and the resulting decline in value over the last few days -- basically it seems that Wall Street bankers are the ones who were screwed. All I can say is -- what goes around, comes around. They finally did it to themselves. For all the complaints about future regulatory needs, the Street never once considered that it might actually protect someone they're interested in -- themselves. Trust in the market has never been lower, thanks to the very folks that benefit from it. Now, not only are government agencies pissed off and investigating, but the traders are going to start pointing fingers at each other. Tsk, tsk Wall Street -- prepare to hunker down. Karma's a bitch, boys. Who knows, when it's all said and done, maybe Facebook will end up actually helping Main Street.
smcguinness 14y ago
Not a pro investor, but can one infer that possibly FB is at an artificial discount?
prawn 14y ago
Blue-collar? I think he means middle-class white-collar. You're not blue-collar if you're sitting at a desk in an air-conditioned office tapping at keys in a suit, even if you wish you were paid more and want to complain.
deleted 14y ago
[deleted]
galfarragem 14y ago
If I would have the money I would buy it for $25 a share. Personally I don't believe it will go under this. Facebook is a good business, just not by the price people were told. I don't believe FB will grow much more. A P/E=100 ($31) is still too high. $25 corresponds to P/E=80, high enough in my opinion. I believe that one Buffet wouldn't pay more than P/E=25, around 8 bucks.. Google right now as a P/E=18, Microsoft less than 11..
cpatrick 14y ago
B
Jach 14y ago
Yet another screw-up involving "real" money/assets and a "real, tested" financial system to add to my collection of "See, it's not just Bitcoin's youth or digital embodiment" rebuttals... I'm looking forward to seeing how all this plays out. I still think the stock price will go up past $38 over the next 6 months, but we'll see.

125 points by xtiy 14y ago

My favourite part was when the hedge fund manager called himself "blue collar". I couldn't care about the rest, boo hoo there were technical issues, NASDAQ had a clause covering them in the event of technical issues and Facebook stock didn't balloon into the $60 or $70 per share price range. I don't feel one ounce of sympathy for anyone who can freely gamble away $100M then have the audacity to complain about it, if the situation were reversed the hedge fund manager wouldn't care if I lost out because I invested $100M into Facebook stock either. Don't get me started on the fact this disillusioned guy thinks the stock should have been in the $70+ range. It doesn't sound like the guy should be handling money full stop, he obviously has a lack of understanding when it comes to the stock market.

sp332 14y ago
The hedge fund has $100MM, that doesn't mean he has $100MM. He's managing other people's money, he's not "freely gambling" with it.
- deleted 14y ago
  [deleted]
- jzycrzy 14y ago
  Just to add to this comment. $100MM at 2% management fees, leaves $2MM for expenses (audit, legal, accounting), officers and staff. He probably makes most of his annual take in a performance bonus, which this 'screw up' probably reduced. FWIW, my favorite part showing how these short term guys think: "we heard rumors there was a market in Europe for $70/share" fast forward to "this thing should have been trading in the $60 to $70 range." Based on a rumor from another continent.
antonioevans 14y ago
To plenty of us in the tech field a successful Facebook IPO would have opened up a path for other tech business to IPO in the near term. On top of that a successful IPO would have opened up some funding in our hacker space (Paypal Mafia/Google Mafia..etc). We want them to be successful.
- malandrew 14y ago
  Kind of true, but I'm wondering if there is more to be gained in Silicon Valley by deflating and delaying the pop of the bubble a year or longer or by prompting a string of tech IPOs that will line the pockets of engineers that can fund many startups several years later after the pop. As someone working on a startup now and looking to move from bootstrapped stage to seed stage, I'd rather see the bubble deflate now. Lining the pockets of a Facebook Mafia and several other "mafias" doesn't do me and others like me a whole lot of good in the near to medium term.
- brazzy 14y ago
  Seems to me it's a very good thing none of that happened. The VC scene was already pretty damn irrational and dysfuntional, and in sore need of some unpleasant reality injection.
waterlesscloud 14y ago
The interesting allegation here is that NASDAQ required traders to dump a bunch of stock on Monday morning, which depressed the price artificially. We'll never know the truth of it, but if it happened it's unfortunate.
hasker 14y ago
Read the article. He is complaining about how the casino operated, not how he bet. One of the most crucial piecing of information in professional trading is knowing your exact risk position. NASDAQ apparently was unable to confirm whether trades were "done" or not. Having a uncertain $100mm exposure to something really scares a trader, since he cannot hedge it. This is the kind of situation where telephone hand pieces get snapped in half, and holes get punches through LCD screens. The flash crash a few years ago created a similar situation where the exchanges decided to cancel certain trades at their own discretion. NASDAQ really botched the IPO. Trading was supposed to open at 11am, and it appeared to me it took until 11:20am to actually start. Problems persisted even after FB opened. They won the listing over the NYSE on the promise this sort of thing would not happen. Mega IPOs always seem to have a lot of drama. GOOG had a lot of stupidity with some interview Larry or Sergey did with Playboy, and I think a few other issues. Finally FB got to the end of the long road to going public.
- lotharbot 14y ago
  > "He is complaining about how the casino operated, not how he bet." This is exactly right. I have no sympathy for a gambler who gets beat because he made the wrong read or the wrong play. I have no sympathy for a trader who loses money because he was wrong about the market. But when a gambler gets beat because the casino kept misdealing the cards, or a trader loses big money because the exchange botched the trade, he has every right to complain. The system is supposed to operate according to certain rules, which failed in this case and cost some people a lot of money. Maybe they would've lost the money anyway, but that's something that should be determined by the market, not by a NASDAQ glitch.
  - DigitalSea 14y ago
    As the article points out, technical glitches are covered in the rules. When you invest you accept these rules, if the hedge fund manager has a problem with the rules then he should not be investing. Therefore no rules were broken as the article points out, it's a stock exchange they aren't dumb they know how to cover their bases (they're bankers after all). He isn't the only one affected by this situation. The bottom line is he would have lost money regardless of NASDAQ's handling of the situation, Facebook stock flopped. This guy needs to cut his losses and take it like a man, he isn't the only one who invested in Facebook stock and lost out, I wouldn't rule out others losing larger sums of money too ashamed to even anonymously come forward. It might sound spiteful, but it's life. Unexpected things happen like these and there's nothing that can be done. I'm sure the SEC will be investigating everything shortly anyway, so we'll see what happens (if any action is taken, which is possible).

BiWinning 14y ago

I have a lot of sympathy for those guys, their ability to artificially pump stock prices brings a lot of value to the economy. Anyways my heart goes out to them.

donaq 14y ago

"Then it was holding at $42 for whatever reason. $42. $42. $42." 42 is the answer. He's just not asking the right question. Sorry, couldn't resist.

dos1 14y ago

I have a hard time drumming up sympathy for these guys. They're mad because they couldn't make a quick buck. Isn't a hedge fund just gambling? It's high time Wall St. learns that it's never a good idea to put more in the pot than you can lose. The part that is most striking to me is that share price and a company's intrinsic value are seemingly in different galaxies. This guy is talking about decisions based on hype. I'm floored. Do these guys really trade based on public opinion?

sp332 14y ago
You go to Vegas and put $5,000 on the roulette wheel and it breaks, it's like, hold on, I'm not going to do that. I like this analogy. You want to play the market, fine. But if NASDAQ breaks, is that really part of the game?
- zackzackzack 14y ago
  If they signed a legally binding agreement, then I imagine NASDAQ breaking would be part of the game.
  - veyron 14y ago
    The contracts absolve NASDAQ of liability in calamities of this nature (my business was almost destroyed -- had to take a 250K loss -- thanks to an order entry server failure), but it doesn't make you feel better. Having had something similar happen to me, I know how much it sucks. You accept its a possibility, but don't really believe it will happen until it does.
    - joering2 14y ago
      I am sorry about you loss. The frustration must be tremendous, especially since we know the fault was so clearly on their system's part. How can you make $400MM (last year) and yet cannot come up with robust bullet proof transactional system, no idea.. Ain't that vicious on their part that the rules of game change when there is no other place to "gamble". Bet this 2648 (or whatever rule # it is) would not stand a chance when NASDAQ just started, but now it is "play with us or don't play at all". Ps. Do you think there is any business behind being a "trade insurer"? Similar to car accidents, every high volume trader would be given an options to be insured up to X amount by paying substantially smaller Y fee.

zackzackzack 14y ago

"Anonymous Hedge Fund Manager: No doubt. But this should have been a blockbuster. This should have traded to $60 or $70. This should have launched a wave of tech IPOs." I think Facebook just deflated the tech IPO bubble for a year or so. No average Joe is going to invest, because, "Well fuck, if Facebook didn't explode, why would any other new tech company? No thanks." The bubble is still there, but it isn't looking like it will be rapidly expanding like people expected it to after the fb IPO.

waterlesscloud 14y ago
I think it's longer than a year. It'll take something really huge to overcome "Well, if Facebook couldn't break out, who can?" That will ripple back through all investment phases since the ipo is the dream payoff day for many investment rounds.
- malandrew 14y ago
  I think it's the kind of attenuation that the market needs right now because it basically discourages investors that buy in based on hype instead of intrinsic value.
- tibbon 14y ago
  I agree with you. For all the startups that wanted to be the "Facebook of X"... if Facebook couldn't do it, why could they?
  - malandrew 14y ago
    Mos' def. They now have a reason to start looking at a revenue sources that aren't based on ads. Every time I hear about a startup trying to shoe in an ad-based business model where you could make money selling directly or via high value intent-based referral fees to complementary businesses I cringe a bit. A lot of the time ads as a revenue stream are a total cop out that demonstrate a total lack of business sense an ability to spot value. Google is successful in ads because they are a generalist intent capture platform. Unless your business also happens to capture generalist intent, you should be thinking about referral revenue based on focused intents.

hnwh 14y ago

Here's my favorite part: " The question is will NASDAQ do the right thing. They made $400 million last year and could pay out some." what the everloving...ffuuu.. I hear whine whine whine from the 99%, and now I hear whine whine whine from a freakin hedge fund manager who BET $100m on FB. IS this the state of affairs now? Country full of WHINERS??

joezydeco 14y ago
That's the free market! Oh wait, that only applies to when you're winning. You ask/beg/sue for relief when it goes the opposite way.

brown9-2 14y ago

This is a crummy headline, the article/interview focuses on problems with Nasdaq's systems, which is far more interesting than some trader whining about a loss (which happens every day).

tibbon 14y ago

If he admits that it never had a shot, why did he invest in the first place? Additionally, would we be feeling bad for Facebook if they had underpriced the IPO and the trader had made 25% profit on day one (and Facebook lost out on a potential 25% of fundraising)?

helmut_hed 14y ago
I'm glad to hear someone say this. Facebook the company did amazingly well on this transaction. A stock that pops is one that has left money on the table. FB did the opposite...

joezydeco 14y ago

There has to be some sweet, sweet irony in the idea being explored that high-frequency traders may have caused the NASDAQ breakage. From an HN post earlier today (http://www.nanex.net/aqck/3099.html http://www.nanex.net/aqck/3099.html): "...In brief, the problem was that the system took two extra milliseconds to calculate the opening price. Because of a decision before to allow continuous order placement during IPOs, cancellations kept “fitting in between the raindrops”, in the words of Bob Greifeld, Nasdaq’s chief executive, in the five milliseconds it was taking to determine a price."

damncabbage 14y ago

"Gambler Who Lost $100 Million on Roulette Wheel: Boy Was He Furious"

_delirium 14y ago

I suppose as a hedge-fund manager he isn't an investor valued towards fundamentals, but if he really thinks Facebook should be valued at $60-70, then I'm not sure some NASDAQ crapping out on one day would change that. If Facebook turns out to be the next Google in terms of ever-growing profits, its stock will get to $70 (and higher) as a result anyway.

apaprocki 14y ago

For context, direct link to NASDAQ rule 4626: http://nasdaq.cchwallstreet.com/nasdaq/main/nasdaq-equityrules/chp_1_1/chp_1_1_4/chp_1_1_4_1/chp_1_1_4_1_8/default.asp#nasdaq-rule_4626 http://nasdaq.cchwallstreet.com/nasdaq/main/nasdaq-equityrul... EDIT: Also, "NASDAQ Equity Trader Alert #2012-21: NASDAQ Proposes Policy for Unfilled Orders in the Facebook Inc. (FB) IPO Cross": http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-21 http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-21 (Their website fails to work in Chrome if you click around -- alert bubble states only IE and Firefox are supported. Tsk tsk.)

ohffs 14y ago

"This should have been a blockbuster." Karma!

kzahel 14y ago

Interesting supposition, that the IPO might have gone down much differently if somehow NASDAQ had been more prepared or messed something up. But the last statement - that it could have been trading at $60 and $70, that is hard to believe.

powera 14y ago

This guy is a moron. Anybody who believes the stock would be at $70 if "the market" worked better doesn't understand how markets work in theory or practice. If there are people who really believe the stock is worth $70, there would have been buyers the past two days. Expecting "hype" around the IPO to support ONE HUNDRED BILLION dollars of extra valuation is beyond stupid.

samstave 14y ago
I am imagining this "hedge fund manager" as some guy who had a fair amount of wealth - but a greater, wealthier, social network. He spent some time pulling from this network to develop a fund, which he would manage to make all his friends rich, himself even richer. He has been frothing for this opportunity, ever since he missed the Google boat. At the time of the goog ipo, he was a lowly broker with little funds to leverage. Since then he has been viciously ambitious. He has built a name for himself and a powerful, if flawed, circle of acquaintances. He was successful in frothing up his circle, convincing them that he could make an FB focused super fund and make them a killing! He gathered up $200MM from his network and put a crazy bet on the stock. He lost - all his credibility gone, a loss which was thought to be a sure thing. He is ruined! Especially since now that the loss is here - it will be revealed that he committed many millions to purchases on this expected cash cow! His bills are due, and he owes $30MM TOMORROW for everything he used funds from his network's input to pre-buy! HE IS FUCKED! But, he has a really nice yacht to attempt to flee to Bermuda on...
nl 14y ago
Using words like "moron" is pretty strong. There are a large number of historical precedents to back up that belief. Ignoring well-known examples like Amazon (which even today trades well above where it "should"[1]), there are other examples like "The Globe", which had a first-day gain of 249%[2] More recently, Splunk popped 83%[3]. He addressed the there would have been buyers the past two days thing, too: It never stood a shot. If there was any enthusiasm for this deal, that got wiped out. Think about a guy who was going to put five grand on this. You go to Vegas and put $5,000 on the roulette wheel and it breaks, it's like, hold on, I'm not going to do that. Suddenly you're like this is Wall Street and I hate Wall Street. [1] http://finance.yahoo.com/q?s=AMZN http://finance.yahoo.com/q?s=AMZN - AMZN has a P/E ratio of 177. Compare that to EBAY: 15, GOOG: 18 [2] http://news.cnet.com/2100-1023-217913.html http://news.cnet.com/2100-1023-217913.html [3] http://online.wsj.com/article/BT-CO-20120419-713258.html http://online.wsj.com/article/BT-CO-20120419-713258.html

thisismyname 14y ago

Why did't he buy class A shares before the IPO. Idiot.

nl 14y ago

I love this story on so many levels. Firstly there is the irony of a "blue collar hedge fund manager" There's the fact the lack of an IPO bump means Facebook equity holders are the people who made money out of it, instead of the investment banks buying at the opening and hoping to sell at the bump price. Then there's the whole "HN thinks Facebook is worthless and has the satisfaction of seeing the stock drop on the opening day." thing. Now it turns out all the self-congratulation over people's "insightful analysis" was probably misplaced - Facebook may or may not be overvalued, but the stock price probably doesn't reflect the market consensus yet. Finally, in an ironic twist Shakespeare would have been proud of it turns out that it was probably the NASDAQ's computer system that meant Facebook missed an IPO bump. Silicon Valley loves talking about how Wall St over-hyped IPOs during the dot-com bubble and blaming it for the lack of a significant IPO exit strategy since. Now it was a computer system that failed Silicon Valley's great hope of reigniting the IPO market.

nextstep 14y ago
You should adapt this for the stage!
- wr1472 14y ago
  A sequel to the Social Network?
to3m 14y ago
This particular man presumably understands class as the English do - that in many cases, it's as much (or more) to do with your upbringing and background as it is to do with your current social status. Perhaps "blue collar" isn't quite the term for this, though. I can't imagine there are many blue collar workers in a hedge fund. Maybe the cleaners...
- ticks 14y ago
  I guess he's trying to say that he feels like he shouldn't be there, a pretender to the throne. Happens a lot when you are working class and join a department/division that attracts people from more affluent families.

joshu 14y ago

I'm gonna call fake on this.

stewartbutler 14y ago

I still don't understand why Facebook has such an overblown valuation to begin with. The entire business is a house of cards based on the possibility that it might make someone else some money someday. Sure, there are some vultures like Zynga that make out like bandits preying on people with addictive personalities who shell out cash, and I'm sure there are a few success stories regarding successful social media advertizing campaigns, but I count the former as resulting from a lack of morals and the latter as unpredictable anomalies that happened to tweak something in the hivemind. I don't perceive any value in Facebook. It is an enormous time sink with rapidly diminishing returns on time investment, and I feel it is only a matter of time before the average user experience is more noise than signal. As soon as that point hits, I can easily see Facebook going the way of MySpace and its ilk. Facebook has some amazing talent on their team, so maybe someone there can see a way forward, but as far as I can tell the end game for all social <insert something here>s appears to be an exodus to a more specialized or sparsely populated network. As an outsider my opinion is of limited utility, but I also think that Facebook is a poison on the tech industry as a whole. I don't see that they have created anything innovative, useful, or even substantial aside from this enormous echo chamber. I'm very glad to see that Wall Street isn't gorging on this IPO, even if it was an accidental fuckup that has spoiled the appetite. With any luck, this flop will convince investors to put their money onto things that create something useful. If anyone has counterpoints, please post them. I write this in frustration, since I just really don't see where this "105 billion" valuation is coming from. Where is the potential in Facebook? What is being produced? Why should I give a damn? - They missed the boat if they are trying to compete with the Google advertizing empire, so that can't be it. - They admit that they aren't having the success they hoped for in the mobile arena. - The only thing going for it is that it is the single largest repository on information about individuals, but that information cannot be ethically or legally used to its full utility, and most of it is white noise anyhow. - The company has repeatedly shown that it doesn't give a damn about its users or small developers. What makes this a sound investment?

saulrh 14y ago
You're missing a point there. The information may be mostly white noise, but with that much data, even filtered by laws and ethics, statistics are powerful. You are not the customer; neither are the developers. It's Target. http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/ http://www.forbes.com/sites/kashmirhill/2012/02/16/how-targe...

dangero 14y ago

I bought Facebook with a limit order when it went on sale to the general public last Friday, and I can confirm it was a terrible experience. Here's basically what happened: I put in a limit order through tdameritrade the night before with a max price of $44. I'm in front of the computer that morning to watch my order when the IPO starts. The price spikes up to 45, then treads around low 40s. I refresh my account. My limit order has not gone through. I wait AN HOUR. Still, it has not gone through so I cancel it. Now it says, "Pending Cancellation." It remains "Pending Cancellation" for over an hour, so I try to call tdameritrade, but their lines are completely backed up with calls. Finally, the system suddenly reports that my order was accepted and I bought Facebook at 42. It's only an hour from market close by the time I see this. What this meant for me and most everyone else was that I was locked out of the market for the first 2 hours after IPO and my assets were frozen. I could neither buy nor sell. I don't think we can really know what the impact of this was on the market, but it certainly didn't instill short term confidence in the Facebook IPO and I think it definitely decreased the volume on the stock. I'm not going to defend everything the guy said, but I do believe that NASDAQ botched the IPO badly and it may be a few months before we know what the market really values Facebook at. There may even be permanent damage done to Facebook's reputation.

BoldAsAnEagle 14y ago
I think this was done on purpose by Wall Street as a punishment for Facebook not licking their ass as most other companies.
grey-area 14y ago
There may even be permanent damage done to Facebook's reputation. Any permanent damage done to Facebook's reputation will purely be because they overvalued the IPO, overstated earnings, bought out other internet companies at inflated valuations pre-IPO, and burned those who bought at the inflated initial valuation. As to whether the trading system damaged confidence in Facebook - it's not always possible to get the deal you want on a stock-market, and anyone placing a limit order should know that they might get a vastly different price than the one they expected - there are disclaimers in trading systems specifically for this situation. Trading is stopped all the time by circuit breakers (see Zynga that same day for example), depends on both willing buyers and sellers at a given price, and of course depends on the trading systems not going down for whatever reason. If you're buying as a long term investment of a stock that you believe in this won't affect you. If you're speculating, particularly short-term, you should recognise that the casino is rigged against small investors - the stock market is not, and never will be, rational, fair, or efficient; it's just the least worst option we have. However I don't believe that lack of access to the stock or prices on the first day of trading has anything to do with the current price ($31 last time I looked) - that's just down to a bubble deflating and confidence evaporating as people start asking questions about the true valuation. Frankly I think this sort of talk of the technical issues is really a way of avoiding talking about why people bought Facebook at the initial irrational PE/price which (IMHO) has farther to fall before it becomes a reasonable valuation based on their projected earnings. That's the real issue here, but one which raises hard questions about the very high valuation of many social media companies like Instagram, Facebook etc.

SODaniel 14y ago

Do we need anymore proof that the concept of 'stock ownership' is irreparably broken? Basically his entire point is that because a trading system was delaying orders for a few hours over $100 BILLION in value was potentially lost? Yeah, that seems like a sound market with long term owners that trade because they believe in a company.. Right?

SODaniel 14y ago

What he really should have said: "We were all betting on millions of small traders shoving $5,000 into this bubble to push the share price north of $70 so that all the large hedge funds could cash out and get rich off the backs of the average Joe. A technical malfunction prohibited us from exiting with 100% profit on intro day and now we are stuck with a bunch of shares we know are worthless. Dammit, how am I going to pay for my next summer houses? Damn you NASDAQ!"

tazzy531 14y ago

"Anonymous Hedge Fund Manager" -- could be a kid in a dorm room or PM at SAC... HF Manager is an inflated title...

jroseattle 14y ago

Given how tight and controlled the shares distribution was by Morgan Stanley, how eff-ed up the orders to NASDAQ went, and the resulting decline in value over the last few days -- basically it seems that Wall Street bankers are the ones who were screwed. All I can say is -- what goes around, comes around. They finally did it to themselves. For all the complaints about future regulatory needs, the Street never once considered that it might actually protect someone they're interested in -- themselves. Trust in the market has never been lower, thanks to the very folks that benefit from it. Now, not only are government agencies pissed off and investigating, but the traders are going to start pointing fingers at each other. Tsk, tsk Wall Street -- prepare to hunker down. Karma's a bitch, boys. Who knows, when it's all said and done, maybe Facebook will end up actually helping Main Street.

smcguinness 14y ago

Not a pro investor, but can one infer that possibly FB is at an artificial discount?

prawn 14y ago

Blue-collar? I think he means middle-class white-collar. You're not blue-collar if you're sitting at a desk in an air-conditioned office tapping at keys in a suit, even if you wish you were paid more and want to complain.

deleted 14y ago

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galfarragem 14y ago

If I would have the money I would buy it for $25 a share. Personally I don't believe it will go under this. Facebook is a good business, just not by the price people were told. I don't believe FB will grow much more. A P/E=100 ($31) is still too high. $25 corresponds to P/E=80, high enough in my opinion. I believe that one Buffet wouldn't pay more than P/E=25, around 8 bucks.. Google right now as a P/E=18, Microsoft less than 11..

cpatrick 14y ago

Jach 14y ago

Yet another screw-up involving "real" money/assets and a "real, tested" financial system to add to my collection of "See, it's not just Bitcoin's youth or digital embodiment" rebuttals... I'm looking forward to seeing how all this plays out. I still think the stock price will go up past $38 over the next 6 months, but we'll see.