Book Review: The Facebook IPO Pitch

Last week on CNBC, commentator Gary Kaminsky caught my attention by featuring a new e-book published by Barrington Brown Press titled, The Facebook IPO Pitch: The Real Reasons You Should Buy the Facebook IPO From an Internet Marketing Insider. The author goes by the moniker Anonymous, so that may tip you off to the lopsided hatchet job the book does, which is actually not a book, but more like a pamphlet or brochure, a scant 47 pages chock full of pictures and large text. However, to be fair, like the title states, it's meant to be a pitch, or presentation wooing individual investors to invest in Facebook's (FB) upcoming IPO.

What got me interested in reading it was one prediction from the text that Kaminsky highlighted: " Microsoft (MSFT) stops funding billions in losses for Bing, and swaps Bing to Facebook for more Facebook stock. Facebook can then take a Google-class (GOOG) algorithm based search engine, and configure it very tightly with its own social search engine to produce a search product that will cross the 50% threshold for search market share.". Although that's a tall order to fill, I wished the author gave more insights like that. There just wasn't enough.

My intent isn't to do a smear campaign on this book, but to point out that it is very one-sided. It doesn't break down the numbers, just gives you a sales presentation of why you should invest in Facebook. According to the book, here are the main themes of why you should invest in the social networking giant. I'm taking these bullet points verbatim from the presentation:

• Facebook is The destination on the Internet. It is the Four Seasons resort property of all time online.
• It has the greatest advertising platform ever and marketing database of all time.
• Be part of history. Tell your kids and grandkids that you bought into the IPO of the most important company ever to go public.

Pretty weak stuff.

I can't go out and call this e-book a pump and dump scheme because like Yahoo (YHOO), Amazon (AMZN) and Google, Facebook will probably launch at warp speed, and make early investors filthy rich. Although the anonymous author is intoxicated with the company, he or she doesn't caution individual investors about the pitfalls of IPO investing. That raises a red flag with me.

I realize that there are many institutional investors that are able to get in on the ground floor of the Facebook IPO, and they may be well compensated for their efforts even if they don't flip their shares. However, as a retail investor (and a lot of retail investors are young fans of Facebook), you should know that shares of stock are bought and sold like cattle at auction. The whales at the high-limit table lock in their prices by being offered shares early. As a Main Street investor, you may score some dough once trading begins, but beware that if you don't use limit orders, you may be very disappointed by your purchase price.

I follow some of the teachings of Peter Lynch, and he floated an idea to individual investors concerning IPOs. His theory is that you don't jump into IPOs because many times the companies don't pan out. His suggestion is to wait for a few quarters and see if you can take a position once the initial circus act is over. That's a strategy I follow. If you jump in during the first day of trading, you may be playing into the hands of all of the hype, and, be knee-deep in it.

I don't know what prompted Kaminsky to feature The Facebook IPO Pitch. It only costs $4.95, but I could have bought an Americano with that money. Granted, Facebook won't be held in check once it hits the trading exchanges. It's one of the big stories of our time, especially if you are a Millennial. The book came off as one big schmooze by the top brass at Facebook, or at least one of the underwriters. Technology IPOs are hot right now, but to invest in them on the first day of trading may be a fixed race for Main Street.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.