At times it may appear we are bearish Facebook stock, but this is not the case. We simply, with the assistance of our computer algorithms, have the uncanny ability to read the market, and we call it as we see it.
The following is a comment we posted on March 19 (Seeking Alpha) about Facebook, but it applies to all Social Media stocks with negative earnings and massive P/E ratios…
March 19, 2014:
The world’s largest hedge fund took a new position in Facebook last quarter… it’s a testament to where the hot money is going: social media
But with any hot market there is no meaningful measure as to how high it can go. Investors are then left to their own imaginations to come up with the possibilities. This in turn drives the market to new highs, and much money will be made for those who can ride that wave to its end resolve.
At some point however, there will exist a better measure of future profits… be it a slow-down in ad budgets, more meaningful data to measure conversion rates, a disclosure of how many fake profiles are out there, or a new player in the industry which disrupts all of that.
When that happens there will be a top and a very deep correction.
For those investors who either a) want to keep their money in social media for the next several years and/or b) have the ability to know when to cash in profits, this is the right market to be in to retire early.
For everyone else, which is likely the majority of investors in social media, it’s best to stick to the blue chips.