With the Facebook IPO and the ensuing fallout, value investors have been given the biggest feather in the cap of the case for investing in value stock funds since the technology boom and bust of the late 90's and early 2000's.
I imagine investors in growth stock funds will argue that Facebook stock is in a category all its own and is thus not valid in the value vs growth argument. They may even say that the Facebook IPO was rigged so even the wisest growth investor had no chance. The value investors will say that no stock, no matter how sexy the underlying company, is a wise purchase unless there is a reasonably verifiable value AND that value makes the stock a worthy purchase. An unverifiable value that is also 100 times its earnings made Facebook a poor purchase decision on both levels. However, time will tell, as always, who is "right."
At this point, the Facebook IPO is unfolding in a very predictable way:
- There is a large entity that happens to be incredibly popular with no real means of placing a reliable valuation on it.
- The capital markets always make the rational choice, although they may get there in seemingly irrational or chaotic ways.
- Investors will determine the value as time goes by, just as any company that goes from private to public.
Perhaps the lesson to learn is that new does not often translate to good in the world of investing. Let me re-frame that thought with a metaphor: No one every really knows if there is a treasure or a monster in a dark room, even if a sign above the door say's "treasure in this room." At this point, the room is still dark and a noise that sounds like a monster is coming from the corner but we still do not know if there is a monster, if it will do irreparable harm, or if a treasure remains in the room along with the monster (who may or may not do us harm).