Facebook, the stock people love to follow. But don’t do it, don’t succumb to the temptation. For those bottom fishers out there who think it’s time to buy a stock because “it’s been sold enough”, and I know you’re out there, resist the urge to buy Facebook (FB).
If the terrible slide since its hyped IPO weren’t enough, a member of Facebook’s board of directors, Peter Thiel, just punted on 20 million shares. That is, he sold those suckers as soon as he could. Well, he waited at least a few days after the lock up period expired.
OK, I don’t know how many, if any, of those shares were restricted until the lock up period expired, but the point is a key member of the Facebook team just gave you his opinion of the company.
Apparently Peter Thiel is a billionaire, with a “B”, investor, which means he’s good at making money. If I was his financial advisor, other than being on an island in the South Pacific, I’d have told him to sell.
If I was Facebook’s public relations guru, I’d have gotten down on my knees and begged him to at least trickle his shares out over time and call it “portfolio diversification” like all other company leaders who sit on a gold mine in stock.
Ultimately price and volume action, along with key fundamental data, should guide your buying and selling. But a secondary indicator is insider buying or selling. People who believe in their company usually at least hang on to most of their shares. Put yourself in their shoes and you’d be tempted to cash out also – unless you knew your company was going to beat earnings and raise guidance in the long haul, multiplying your wealth many times over.
So when insiders bail in a big and meaningful way, like Thiel did, you should pay attention.
I have below here the stock chart of Facebook. There is technical action enough to indicate trouble for the stock long before Thiel sold the vast majority of his shares.
First, look at the green arrow. That’s bad price action after the stock had rallied in price. The blue bands you see are a modified Keltner Channel. The stock rallies to the middle of the bands, the mean, after the said terrible price action but doesn’t punch through it.
The orange arrow shows a break down from an upside-down cup with handle pattern which I documented in an earlier post. The break down comes on the highest volume in a month at that time, which was a lot relative to its recent action. This came the day before earnings, an ominous sign.
The red arrow shows Facebook rallying again to the mean but can’t push through. This is a stock stuck in a downtrend. I’d quote famed stock trader and commentator Gerald Loeb from his book “The Battle For Investment Survival” here, but his book is buried in a box at the moment.
Wait, I have it on my iPad Kindle app: ““Trend”, therefore, is overwhelmingly the most important element in appraising whether you can make profit from buying a given issue or not.” Well, that wasn’t the exact quote I was hoping to find, but it works. This guy, Loeb, was good – they even named a prestigious financial journalism award after him.
According to Investor’s Business Daily (the inspiration for this blog), Facebook has a relative strength rating of 2. That means 98% of all other stocks in the stock market are outperforming Facebook in price.
So if you are Thiel, you do what you have to do and make money. Who knows when Facebook will come back in price, if it ever does. From that perspective, why let $400,000,000 (four hundred million!) loaf? That’s about what Thiel’s shares were worth.
I’ve never ever felt sorry for a billionaire, but think about how much Thiel’s shares were worth only days before the lock up period. Ouch! Now he has a mere $95 Million or so in Facebook stock left. Give me a ring, Pete, we’ll do lunch – no worries, it’s on me.
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