Forgot your password?
typodupeerror
Businesses Facebook

Facebook Could Spawn Thousands of Milionaires 434

Posted by samzenpus
from the show-me-the-money dept.
Hugh Pickens writes "Retuers reports that the world's No. 1 online social network is preparing for a blockbuster initial public offering that could create thousands of millionaires as Facebook employees past and present begin hatching plans on how to spend their anticipated new wealth. 'There's been discussions of sort of bucket list ideas that people are putting together of things they always wanted to do and now we'll be able to do it,' says one former employee who expects his shares to be worth $50 million and is planning to book a trip to space with Virgin Galactic that would cost $200,000 or more. 'It's been a childhood dream.' Another group of Facebook workers has begun laying the groundwork for its own jungle expedition to excavate a relatively untouched site of Mayan ruins in Mexico that sounds like Raiders of the Lost Ark. But for many of Facebook's staffers, the IPO will provide the means to pay off school loans and buy a house or new car and many homeowners and real-estate agents are eagerly anticipating a surge of new buyers that could push prime real estate to new heights. 'If a Facebook guy buys a house and wants to remodel it, maybe the contractor will buy another car,' says Buff Giurlani. 'Maybe the realtor will put a car in. There's a trickle-down effect.'"
This discussion has been archived. No new comments can be posted.

Facebook Could Spawn Thousands of Milionaires

Comments Filter:
  • Yeah right. (Score:5, Insightful)

    by Alex Belits (437) * on Sunday December 11, 2011 @12:02PM (#38335284) Homepage

    This is exactly what everyone needs, a bunch of people believing they are going to be rich soon.

    • Re:Yeah right. (Score:5, Insightful)

      by Dunbal (464142) * on Sunday December 11, 2011 @12:25PM (#38335484)
      It's the only way you can sell tech IPO's nowadays.
      • No bubble here. (Score:5, Informative)

        by Colin Smith (2679) on Sunday December 11, 2011 @12:37PM (#38335586)

        Noo. Up up and away. Yes the company is worth 100 billion, more. Just step right up and get your share certificates, hot from the press.

        Nooo bubbles here. Social 1.0 isn't a fad or a bubble at all. Bet your grandchildren on it.

        P. T. Barnum would be proud.

        Note: Facebook is valued at a P/E of ~125. 12 is about average.

        • Re:No bubble here. (Score:5, Informative)

          by MalleusEBHC (597600) on Sunday December 11, 2011 @01:30PM (#38335998)

          Note: Facebook is valued at a P/E of ~125. 12 is about average.

          That's the average for an established company. IPOs and other companies with strong growth potentials often have much higher P/E ratios. For example, Google's P/E was well over 100 when they went public, and now it is down to 21 as they are a much more mature company. That said, distinguishing between companies with strong growth potential and irrational exuberance is extremely difficult. I think Facebook falls in the latter camp, although certainly not with enough confidence to put my money where my mouth is.

          • Re:No bubble here. (Score:5, Informative)

            by Half-pint HAL (718102) on Sunday December 11, 2011 @01:51PM (#38336220)

            That's the average for an established company. IPOs and other companies with strong growth potentials often have much higher P/E ratios.

            The problem with that statement is it assumes all IPOs are "new" companies. Facebook is (in my book) mature. They've reached saturation, they've driven their main competitors out of the market, and they have an established revenue stream (which isn't particularly impressive).

            • Re:No bubble here. (Score:5, Insightful)

              by j00r0m4nc3r (959816) on Sunday December 11, 2011 @06:26PM (#38338180)
              They've reached saturation

              Precisely why investors should steer clear...
            • by Anonymous Coward on Sunday December 11, 2011 @09:01PM (#38339060)

              What are you talking about saturation? They're still growing like crazy. In the past four years their userbase has grown from 20M to 800M users. At that rate, over the next four years they will grow to 32 Billion users! The profit potential in that is something the world has never seen! In fact, with those users in hand, their revenue might match Apple's 2010 numbers -- but why mention has-beens such as Apple and Google, when clearly Facebook is the stock set to move after its 2012 IPO!

          • How does Facebook have "strong growth potential"? I suspect that the majority of people who want to be on it, are by now.

            Remember MySpace? The same kind of reasoning was used on it.
            • Re:No bubble here. (Score:5, Insightful)

              by MaskedSlacker (911878) on Sunday December 11, 2011 @05:18PM (#38337738)

              You make the mistake of thinking users are their customers. They don't need to grow their userbase to grow their customerbase. Customerbase is what is relevant here.

              • No, I haven't made that mistake. What I am wondering is: if their userbase is (arguably) not going to expand by many more multiples, then what kind of new exploitation of their user data will they come up with? There are only so many, after all.
                • Re:No bubble here. (Score:5, Insightful)

                  by JSG (82708) on Sunday December 11, 2011 @07:45PM (#38338562) Homepage

                  The users of FB are the _product_ and not customers. The customers are the advertisers.

                  Now I think it is unlikely that the number of users is going to increase significantly. Certainly not by say 100%.

                  So is the amount of advertising revenue going to increase by 100% - I doubt it.

                  I suggest you apply the term toxic to this beast - you will lose, its well over valued.

              • by ceoyoyo (59147)

                Customers are their product. They're not going to get much more product. That's even worse than not being able to find new customers.

          • Re:No bubble here. (Score:5, Insightful)

            by blue_teeth (83171) on Monday December 12, 2011 @01:27AM (#38340438)
            I'd suggest anyone venturing to invest in stocks to read book The Intelligent Investor by Benjamin Graham
        • by Surt (22457)

          No kidding. I know more and more people who are leaving facebook because ... well, it gets boring.
          It's just clearly not what people want in the long term.

    • Re:Yeah right. (Score:5, Insightful)

      by lightknight (213164) on Sunday December 11, 2011 @12:30PM (#38335530) Homepage

      Nonsense. This article only serves as a warning for everyone to prepare 'new' prices for when it actually does IPO. Read the article...these people speak of trickle-down economics, but they're really salivating at the prospect of luring an idiot into their store with waaaay too much money and apparently very little common sense. Long-lost relatives and forgotten friends will come running with their hats in their hands, doing what they can to get some of that money.

      A fool and his money, soon parted. And you've got the cream of the crop of thieves reporting in here...let's see...real-estate agents...car salesmen....home contractors....all we're missing are some dead-end charities and a handful of political operatives, and that money will be gone.

      Fun on two levels: 1.) there's only one IPO, not a dozen of them in quick succession (don't expect the good times to last) 2.) I still question what Facebook's worth will be in 3 years.

    • Re:Yeah right. (Score:5, Insightful)

      by Anonymous Coward on Sunday December 11, 2011 @01:34PM (#38336032)

      It's a pump and dump. Although out in the open, in the press, with reputable banks doing it, so people are misled.

    • Re:Yeah right. (Score:5, Insightful)

      by conlaw (983784) on Sunday December 11, 2011 @03:06PM (#38336870)
      Someone needs to tell these dreamers:
      1. Read the terms of the document giving you the shares to see when they vest;
      2. Figure out where you'll get the money to buy the shares so you can sell them (sometimes you can do a cashless exchange but you have to know
      a. who will arrange this for you, and
      b. how much money it's going to cost you to have someone make the exchange
      3. Realize that there are insider lock out periods after the IPO and before and after every quarterly report (any employee with options is an insider)
      4. Profit? ?
  • Trickle down? (Score:5, Insightful)

    by hedwards (940851) on Sunday December 11, 2011 @12:03PM (#38335292)

    As opposed to the spending that would have been done had the money not been looted from the workers to begin with. If we're serious about getting out of the recession, perhaps we ought to do something radical like beef up worker protections and protections for small businesses.

    As for FB, my bet is still that it goes the way of MySpace before too long.

    • by Anonymous Coward on Sunday December 11, 2011 @12:12PM (#38335364)

      As for FB, my bet is still that it goes the way of MySpace before too long.

      Especially when the staff is off playing Raiders of the Lost Ark in the Yucatan.

      • Re: (Score:3, Funny)

        by ubrgeek (679399)
        Zynga must be salivating with the new potential: Johnny has sacrificed a captured enemy and sent you a human heart as gift!
    • What money? (Score:5, Informative)

      by unassimilatible (225662) on Sunday December 11, 2011 @12:21PM (#38335454) Journal
      The money will come from an IPO, not "stolen" from any workers (my understanding is that FB actually pays their workers and does not use slave labor). Investors - many if not most of them will likely be these poor little "workers" you speak of and their pension funds - will buy the stock on IPO day.

      There are ways to make money apart from someone else handing you a paycheck.
      • Re:What money? (Score:5, Insightful)

        by artor3 (1344997) on Sunday December 11, 2011 @01:35PM (#38336040)

        Wall Street investors don't make money, they take it. You think those dollars are just appearing out of nowhere? If you "make" a million bucks off an IPO, it's because you sold your shares to a sucker who paid more than they're worth. Or maybe your a fund manager, and you just take a few percent off every American's retirement fund every year, as payment for your "skill" at investment (even though you're all but certain to underperform the index in the long run).

        Buying and holding a stock for dividends or growth are legit. Venture capital and angel investments are legit. But this IPO pump-n-dump crap is a scam. It's theft. Ditto mutual fund fees and high frequency trading. The robber barons at Wall Street are just siphoning off tiny bits of everyone else's savings every day. It's nice and slow, so you won't notice, but in aggregate it's enough money for them to live like gods.

    • Re:Trickle down? (Score:5, Interesting)

      by poena.dare (306891) on Sunday December 11, 2011 @01:10PM (#38335832)

      "As for FB, my bet is still that it goes the way of MySpace before too long."

      I'm hoping for something more mature, but the internet has this way of recycling ideas...

      "There was a kind of ghostly teenage DNA at work in the Sprawl,
      something that carried the coded precepts of various short-lived
      sub cults and replicated them at odd intervals."

  • by mikkaboy (930496) on Sunday December 11, 2011 @12:06PM (#38335326)
    So maybe the 1% will become the 1.1%?
    • by SmallFurryCreature (593017) on Sunday December 11, 2011 @12:14PM (#38335384) Journal

      Instead, IF this were to even happen, and I thought trickle down economics died when Reagan's body finally followed his brain, then what would REALLY happen is that the 1% become 0.9%.

      Average income, ever heard of it? Well, average income is the total of all income divivded by the number of people with an income. The more people have a high income, the more people need to make a low income to compensate.

      If you got 10 people and they average an income of 1000 then the total is 10.000. But if one of them makes 10.000, then the average is still a 1000 as long as the others make zero.

      Now, do a fun lookup. Research the average wage in the US and look up how much say a Bill Gates make. Then realize how many people are begging on the street so Bill Gate can be so rich.

      That is how the whole 1% vs 99% works. And more people becoming millionaires doesn't do anything but make far more people poor.

      • That is how the whole 1% vs 99% works. And more people becoming millionaires doesn't do anything but make far more people poor.

        When opportunity is largely taken away by virtue of things like offshoring and the general contempt of regular, nonbusiness-owning people through things like contracted labor, you are correct.

        The damage is done through their influence, not their wealth though. Any perceived expansion of the pie is negated by the influence that converts a dynamic pie into a near-fixed pie.

      • Re: (Score:3, Insightful)

        by russotto (537200)

        Research the average wage in the US and look up how much say a Bill Gates make. Then realize how many people are begging on the street so Bill Gate can be so rich.

        Nobody is begging on the street so Bill Gates can be so rich. It's not zero-sum.

      • Instead, IF this were to even happen, and I thought trickle down economics died when Reagan's body finally followed his brain, then what would REALLY happen is that the 1% become 0.9%.

        Average income, ever heard of it? Well, average income is the total of all income divivded by the number of people with an income. The more people have a high income, the more people need to make a low income to compensate.

        If you got 10 people and they average an income of 1000 then the total is 10.000. But if one of them makes 10.000, then the average is still a 1000 as long as the others make zero.

        Now, do a fun lookup. Research the average wage in the US and look up how much say a Bill Gates make. Then realize how many people are begging on the street so Bill Gate can be so rich.

        That is how the whole 1% vs 99% works. And more people becoming millionaires doesn't do anything but make far more people poor.

        Without resorting to what are basically number games, explain to me precisely how Bill Gates being rich automatically makes someone else poor. Do you believe that there is this fixed pool of wealth and that the only way for me to have more is for you to have less?

        To answer your unstated rhetorical question concerning how many people are begging on the street so Bill Gates can be rich: The answer is zero. Not a single person is begging on the streets so a rich person can be rich.

        • by makomk (752139)

          Do you believe that there is this fixed pool of wealth and that the only way for me to have more is for you to have less?

          In theory that doesn't have to be true. In practice, the easiest way to get wealthy is to skim off money that would otherwise have gone to other people, whether it's through skimming people's pension schemes through excessive fees on their 401(k)'s or running pump-and-dump-style IPOs or even just getting a monopoly and charging every business in the country through the nose for your product like Microsoft did. (In fact, I think economically speaking it may well be the only way to become individually wealthy

      • by mcgrew (92797) *

        I ran across this while metamoderating, someone modded you "offtopic. I don't see it.

        But I do see a glaring mistake on your argument -- the average [wikipedia.org] income is much higher than the median [wikipedia.org] income.

  • Bull (Score:5, Informative)

    by Spad (470073) <slashdot @ s p a d.co.uk> on Sunday December 11, 2011 @12:10PM (#38335346) Homepage

    That's not a "trickle-down effect", it's just economics. If *I* buy house and want to remodel it, then I might get someone to do it, who will - shock, horror - be paid for it and they might then spend that money on something. That's how our economy works.

    The idea that because these people will have lots of (potential) money in the form of Facebook shares means that they're going to spark some kind of economic boom is ludicrous; sure, some of them might go on spending sprees, others will probably invest it, others will keep all their shares in the hope the prices will go higher, but on average it won't make any significant difference to the economy as a whole.

    • Re:Bull (Score:5, Insightful)

      by Dunbal (464142) * on Sunday December 11, 2011 @12:29PM (#38335528)
      No, the way the economy works is you can't afford a house, so a bank put you in debt and gave the money to a developer. So when you want to remodel, you take out an additional loan or renegotiate your current loan and pay cash to a contractor who is maxxed out on his credit cards. He takes your money and gives it back to the bank to pay down his debt, and so the slavery continues. And here you were thinking you were going to break out of your servitude by remodeling because you were fooled by greed into thinking that house prices will go up forever and there will be eternal demand for homes - especially taking into account the inverted population pyramid.
    • by wanzeo (1800058)

      The idea that because these people will have lots of (potential) money in the form of Facebook shares means that they're going to spark some kind of economic boom is ludicrous

      Yes. I think a better idea is to ask where all this "new" money is coming from. Ultimately, it comes from average people, most of whom have no idea that their money is being used to buy Facebook stock. But the contractor whose bank is buying Facebook stock is not going to benefit at all from rich people playing in the rainforest or joyriding into space.

      This is the reality of our economy, all of the wealth at the top comes from the bottom, but not all of the wealth at the top trickles down to the bottom.

  • The smart ones... (Score:5, Insightful)

    by damn_registrars (1103043) <damn.registrars@gmail.com> on Sunday December 11, 2011 @12:10PM (#38335350) Homepage Journal
    ... will sell their stocks ASAP. Social networking is the next bubble and those who hold on to their stock as speculators will end up taking a bath. I would recommend the first ones who get their stock sell it within a month or less and then figure out what they want to do for a real job once the bubble bursts.
    • by Trepidity (597) <delirium-slashdot AT hackish DOT org> on Sunday December 11, 2011 @12:18PM (#38335418)

      Typically employees can't sell their shares until at least six months post-IPO. Which, yes, can put you in a very bad position if you start spending "your" money right after the IPO in anticipation of the future wealth, and then the stock tanks and you're now in debt.

      • Re:The smart ones... (Score:5, Interesting)

        by damn_registrars (1103043) <damn.registrars@gmail.com> on Sunday December 11, 2011 @12:29PM (#38335524) Homepage Journal

        can put you in a very bad position if you start spending "your" money right after the IPO in anticipation of the future wealth, and then the stock tanks and you're now in debt.

        That is an excellent point. We don't know how financially knowledgeable most of the employees who will receive stocks are. They may well be taking advice from fools and end up believing themselves filthy rich before they ever see any actual money from their stock.

        Even worse would be if employees invest in it for their retirement accounts. Back when I worked at CompUSA (back when it was American-owned and publicly traded), I knew someone who invested heavily in company stock for his retirement. Thankfully I was not that person, although I was tempted. The company folded before he reached retirement, as I recall - I just don't know if he got anything back from the buyout.

      • by durdur (252098)

        There were quite a few people in the 1999-2000 tech boom who exercised their stock options and kept (rather than immediately sold) their shares, expecting they would go even higher. The problem is, the exercise is treated as a taxable gain. So if the stock later tanks, you have a big tax bill and no money to pay it.

      • by Animats (122034) on Sunday December 11, 2011 @02:08PM (#38336390) Homepage

        Typically employees can't sell their shares until at least six months post-IPO.

        The SEC required a 2-year wait until the early 1990s. Which is partly why IPOs that ran way up after the IPO and then crashed [wikipedia.org] were so popular during the original dot-com boom.

        How much is Facebook really worth, anyway? Let's look at the numbers. Facebook revenue for 2010 was $1.86 billion. [pcmag.com] Goldman Sachs, which makes a private market in Facebook stock, sent a report to their investors indicating Facebook earned $355 million in the first 9 months of 2010. [reuters.com] That would be $473 million for the year, for a 25% profit margin. Of course, those are unaudited numbers. When the SEC filings take place for an IPO, they may decrease as accounting gimmicks are disclosed and discounted.

        The next question is, do we value Facebook as a growth company or an ongoing company? Let's look at Facebook's traffic stats. [alexa.com] Traffic went up steadily until mid-2011, when it peaked. (Before Google+ started, incidentally.) It's been down a bit since then. So Facebook may have maxed out and started on its decline, like every other social network from AOL to Myspace did. There probably isn't a lot of growth left. Is there anyone not on Facebook who wants in?

        OK, what's a company with $473 million in annual revenue worth? Google's price/earnings ratio is 21.39. Microsoft, 9.34. IBM, 12.69. Netflix 16.11. AOL 26.43. Yahoo 19.51. IAC (Ask's parent) 18.27. So we can say that the market is at best valuing mature Internet companies around 20x earnings.

        That gives Facebook a valuation around $9 billion.

        Even that may be optimistic. That assumes Facebook's user base doesn't shrink. Remember when Myspace was on top? This is Myspace on the way down. [alexa.com] To earn that $9 billion valuation, Facebook has to maintain its current size and profitability for 20 years. Does anybody think that will happen?

        (How many people here remember when one of the founders of Slashdot was asking on here what to do with his money when VA Linux, the parent of Slashdot, went public in 1999? They had the biggest first-day runup after an IPO ever. The stock hit $239 on the first day, and then went into a screaming dive. Six months later it was around $40. Not as rich as he thought. By 2002, it had dropped to $0.54. The stock is still trading as GKNT, formerly LNUX. Here's the chart. [yahoo.com])

        • by Trepidity (597)

          How many people here remember when one of the founders of Slashdot was asking on here what to do with his money when VA Linux, the parent of Slashdot, went public in 1999?

          Hah, I remember that, but it was Eric Raymond, not a Slashdot founder: "Surprised by Wealth" [slashdot.org]

    • by somersault (912633) on Sunday December 11, 2011 @12:33PM (#38335550) Homepage Journal

      Social networking itself is not the bubble. Facebook might die out, but it needs a real competitor first. Saying social netsorking will die out is like saying word processing applications will die out. Sure, they may turn into digital scribes with us just speaking what we want to write or something, but the basic function they provide is something that lots of people find useful, and will continue to find useful. Even Slashdot itself is a kind of social network, all web forums are. People like to share news and ideas.

      • by damn_registrars (1103043) <damn.registrars@gmail.com> on Sunday December 11, 2011 @02:05PM (#38336352) Homepage Journal

        Social networking itself is not the bubble

        I beg to differ.

        Facebook might die out, but it needs a real competitor first

        Not necessarily. Products have previously risen and fallen in terms of hype and excitement without being replaced.

        Saying social netsorking will die out is like saying word processing applications will die out

        Word processors are important business tools. Facebook is not.

        I think a better comparison for facebook is the segway human transporter. Remember how much hype went to "IT" before we knew what "IT" was? Then we found it cost $5,000 and almost nobody was interested any more. It didn't need to be replaced by anything, because we realized it wasn't that important to begin with and it wasn't much better than options we already had.

        Similarly, facebook isn't really that important, and not any better than options we already had.

        Even Slashdot itself is a kind of social network

        And slashdot is, undoubtedly, dying. It just didn't reach the large number of readers/victims that facebook had, so nobody really paid that much attention to it's demise.

        People like to share news and ideas.

        Which, strangely enough, we were able to do before facebook, and we can still do without facebook.

    • A month? (Score:5, Insightful)

      by Colin Smith (2679) on Sunday December 11, 2011 @01:10PM (#38335830)

      Really ? I think you have maybe a couple of hours.

      Note, there will almost certainly be a hold clause on the stock for normal employees. The ordinary employees will have to hold the shares for a specfic minimum period. This allows the management to dump their shares at the peak price, before the bulk of the supply of shares kicks in.

      Groupon dropped from 26 to 16 inside a week. They're still making a loss but there's some muppet out there buying them.

  • by sethstorm (512897) on Sunday December 11, 2011 @12:20PM (#38335448) Homepage

    That doesnt mean you treat the people on top like deities while treating regular US citizens with contempt.

  • Trickle down (Score:4, Interesting)

    by roman_mir (125474) on Sunday December 11, 2011 @12:21PM (#38335458) Homepage Journal

    The only real 'trickle down' is in production, not in consumption. People who invest their savings into businesses create opportunity for new products, new services, new jobs and new investments for others. That's the only real trickle down and what is called 'trickle down' in modern society is no such thing. 'Trickle down' based on spending is very limited, very narrow and is sporadic (so somebody spends a few hundred thousand dollars today, he is not going to spend the same amount tomorrow).

    Besides, any spending that takes place disperses the investment capital and makes it less likely to be used as an investment. The real trickle down is working very well, but it's working in China, not in US or Europe. It's working where people invest and produce.

    As a side note any taxes also destroy investment capital and prevent economy from growing for the same reason - this stuff is not used for meaningful production, only to subsidize consumption one way or another.

    --

    PS. I said it on 16th of September that holding deposits in banks has become dangerous, because banks will just steal the deposits. [slashdot.org]

    On October 25, 2011 MF Global reported a $191.6 million quarterly loss as a result of trading on European government bonds. [wikipedia.org] On October 31, 2011 MF Global filed for Chapter 11 bankruptcy. Depositors lost money, not 'investors' or traders - depositors. The bankers are now stealing deposits as I said they would, so stay clear of banks.

  • by sco08y (615665) on Sunday December 11, 2011 @12:28PM (#38335512)

    Virtually all of that money will go into the general economy. The only part that won't will be a relatively tiny portion that will be invested in precious metals, typically less than a percent. All the rest will:

    * be invested in other companies, either directly through stocks or indirectly through the banking system
    * be spent on consumer goods and services
    * be spent on real estate and the upkeep of real estate
    * be donated to charity
    * be paid to the public sector as taxes
    * be invested in the public sector as bonds

    The notion that wealth "trickles" down is total bullshit. It's like a flat-earth theory of economics.

  • by sgt scrub (869860) <{moc.oohay} {ta} {muitnias}> on Sunday December 11, 2011 @12:52PM (#38335684)

    The good. the IPO will provide the means to pay off school loans and buy a house or new car.
    It is good to get out of debt and solidify yourself.
    The Crazy. one former employee who expects his shares to be worth $50 million and is planning to book a trip to space with Virgin Galactic that would cost $200,000 or more
    It is crazy to become wealthy then chance it all on being shot into space.
    The Disgusting. real-estate agents are eagerly anticipating a surge of new buyers that could push prime real estate to new heights
    Agents that can't wait to pump up the prices on homes in anticipation for a very small number of potential clients.

  • by FatLittleMonkey (1341387) on Sunday December 11, 2011 @01:25PM (#38335970)

    The reason why people are suspicious of trickle down economics is that when you're being trickled upon, the only thing you see above you is cunts and assholes.

  • by brit74 (831798) on Sunday December 11, 2011 @01:34PM (#38336030)

    'If a Facebook guy buys a house and wants to remodel it, maybe the contractor will buy another car,' says Buff Giurlani. 'Maybe the realtor will put a car in. There's a trickle-down effect.'"

    Could someone explain to me how this has a net positive effect on the economy when the reason that the facebook employee made money was because he sold some of his shares to an investor, meaning the investor moved money *into* the stock (which suggests that the investor moved money out of the economy* and into the stock)? Now I suppose the investor has a finite amount of investment money, so he probably shifted money out of other stocks (rather than the economy*) which suggests that other stocks would take a small hit in stock price (since there's a relatively less demand for them), which affects other investors. It just sounds like the whole process would result in a net neutral effect on the economy - i.e. a Facebook employee might buy a new car which helps the economy, but another investor somewhere bought that facebook stock which takes the same amount of money out of the economy (at a different geographical location).

    * By "the economy" I mean spending it on consumption.

    • by fsckmnky (2505008) on Sunday December 11, 2011 @01:58PM (#38336284)
      Shares of stock are worth, what the last buyer/seller agreed to sell them at. Since most corporations shares trade above "book" value, the process creates money ( I use the term loosely here ) due to "anticipated future revenues" and on paper, the overall size of the economy grows, and more money ( wealth ) circulates.

      Before the first share of an IPO trades, investment banks and the corporation "fix" the price at what they believe they can sell all available shares for, and hand them out to large investors and members of the "special" club. Assume this is $20 per share. Assume the company is actually worth $20 a share. As soon as the first share is traded on opening day on the stock exchange, assume it trades for $30. $10 per share of "wealth" was just created, as the open market "anticipates" future revenues.

      This is why it is not an immediate zero sum game. If the company continues to grow revenues, and investors continue to anticipate growth, the value/wealth will continue to increase. When investors sour, the company stumbles, the revenues dry up, etc, which could be 1 year or 100 years later, the previously generated wealth evaporates.
      • by shutdown -p now (807394) on Sunday December 11, 2011 @07:03PM (#38338338) Journal

        This is why it is not an immediate zero sum game. If the company continues to grow revenues, and investors continue to anticipate growth, the value/wealth will continue to increase. When investors sour, the company stumbles, the revenues dry up, etc, which could be 1 year or 100 years later, the previously generated wealth evaporates.

        One would argue - if the wealth eventually "evaporates", was it ever really there, or were people trading stocks just pretending it to be?

        Frankly, it's why I don't really understand the stock market as it is. The original concept - buying stocks meaning investing into the company, and getting dividends normally proportional to how well it does later - makes perfect sense. You give someone money to fund their profitable activity, they earn more money, and they share some of it back with you at a pre-arranged rate. Everyone profits. I can see how this is good for economy, as well.

        But buying stocks that don't pay anything, on the premise that you can find another sucker to sell them to for a bigger price later? No matter how I slice it, it looks like a pyramid scheme to me.

  • by HockeyPuck (141947) on Sunday December 11, 2011 @03:05PM (#38336862)

    The trickle down effect here will be that housing prices will continue to go up, making it much harder for those that are not part of IPOs to get into a home (either first time).

    Housing in the Silicon Valley is already brutal. A "starter home" which is 3 bedroom, 2.5bath and about 1600sq ft is already at $500,000. And that is in a neighborhood that doesn't have "desirable schools." Oh yeah and you're 10ft from all of your neighbors. We're not talking acreage here.

    What if you want to have "desirable schools"? Then that exact same house would cost about $1million.

    I've always told people when they consider living in the silicon valley, move here right out of college. That way, since you're used to being poor, it'll be an easy transition. Try selling your 3000sq, $300k home in RTP North Carolina and moving out here with a family of 5.

  • by IGnatius T Foobar (4328) on Sunday December 11, 2011 @06:05PM (#38338066) Homepage Journal
    We welcome all of the new Facebook millionaires! They can hang out in the posh Silicon Valley country clubs along with all of the Red Hat millionaires, the VA Linux millionaires, and the Netscape millionaires...

    What? What? Was it something I said?

"Nuclear war would really set back cable." - Ted Turner

Working...