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Facebook Gold Rush: Fanfare vs. Realities

 By GRETCHEN MORGENSON, NYT

IT’S an old line on Wall Street: If you can get your hands on a hot new stock, you probably don’t want it.

This bit of Street wisdom came to mind last week, as Facebook went public amid so much fanfare.

The stock eked out a 23-cent gain on its Day 1, to $38.23. This suggests that many professional money managers viewed all the hype as just that. Whatever the long-term prospects of this company — an issue over which reasonable people reasonably disagree — the idea that small-time investors might get rich fast struck the pros as absurd.

It is true that initial public offerings have increasingly become a game for early investors and their Wall Street enablers. Since the 1980s, average first-day gains on new stock issues have risen steadily. According to one 2006 study, the average first-day return on I.P.O.’s in the 1980s was 7 percent. By the mid-1990s, it was 15 percent. In the 1999-2000 dot-com boom, it was 65 percent.

We all know how that last one turned out.

(More here.)