Let's Talk Twitter

I'm like everybody else, fascinated by the Twitter offering and trying to decide if I want to buy.

But unlike everybody else, I'm in no rush. My daddy was a stock broker for over 50 years and we talked stocks at our house like other people discuss the weather.  When I was 12 I bought Frisch's common stock with my babysitting money and - while it wasn't the best investment I ever made - there was still enough to pay for paneling to finish our basement a couple years later when I asked my parents for my own bedroom. After all my years in the business advising other people about their money (only job I ever had), I've watched the get-rich-quick train circle the block a bunch of times, and there's no need to run if this one pulls out of the station before we can get on board. There's always another hot stock, probably right behind it.

I didn't get any shares on Twitter's Initial Public Offering.  That's because I'm a crappy customer.  I do my own trades through Merrill Lynch Edge and it's really, really cheap.  I didn't even bother to call and ask my brother (a financial consultant with Merrill) to put in an Indication of Interest (IOI). He probably didn't get a single $26 share on the allocation, but if he did he would have given them to his customers who pay the most commissions.

Now let's look at some numbers and see if the stock is worth buying in the open market:

TWTR offering: $26
Opened on the NYSE at $45.10  High for the first day of trading on Thursday:  $50.09  (1st hour)
Close on first day:  $44.90
Close on Friday:  $41.65

So far anybody who bought on the open market is losing money.

HOMEWORK:  This is an interactive blog where readers are actually supposed to learn something.  Go to any finance site.  (Google Finance, Seeking Alpha, and Yahoo Finance are free and reputable. There's also Merrill Lynch Edge, Schwab, Fidelity, Motley Fool, etc, etc, etc)  Now feed in the symbol for Facebook (FB).  It will give you a chart that shows the last two days of trading which is completely and utterly useless as it is too short a time frame to tell you anything of value. Go to the top of the chart where they offer other time frames and click "all."  Since Twitter and Facebook are in the same business, and Facebook's Initial Public Offering was May 18, 2012 - this a valuable map for how a good company trades after the excitement from the offering has died down, that is if everything goes right and it turns out to be a good investment.

FB offering:  $38
It traded as high as $45 the first day and closed at $38.23.  A week later the stock was at $26.81.

See what I mean?  No rush.

I love Facebook.  Their platform has changed my life for the better.  Other people complain about all the cat videos, but my FB friends are really smart and I get the vast majority of my news about the world from what they share on my news feed.  My husband uses Facebook to connect his students at his language school and keep them informed about everything Italian.  It's also put him back in touch with lots of friends from his native country. We've even paid for advertising.  In other words, I am a believer in the Facebook product and knew I wanted to be a long-term owner, so I established a "starter" position at $32 (300 shares) in the summer of 2012.

As the federal lock-up period ended 6 months after the offering (employees can't sell for the first 6 months and if you check your chart you'll be able to see it) the stock fell below $20 a share.  The drop was not surprising as it's perfectly normal for employees to want to diversify and spend a little of their windfall.  Since I was still a loyal Facebook user, I bought 1200 more shares around $19 and didn't worry.  Turned out to be a good move.  They have over a billion monthly active users all over the world, up 18% year over year, and their ad revenue increased 66% in the latest quarter.  The stock closed at $47.53 on Friday and I hope to hold it for at least another decade or two. Social networks are empowering individuals in amazing ways and we're just starting to figure out how to use them.

But as to the original question, "Will I buy Twitter?"  The stock would have to get really, really cheap to tempt me into the fray.  I've got a Twitter account, but I don't use it. Or really understand it. With only 235 million regular users (nothing to sneeze at - it's definitely a valuable asset) - I'd like to see them turn a profit and establish a solid trend before I commit.  It's OK if I miss a little of the upside. This is a company that's going to be around for a long, long time.  But before I establish a position I better believe enough to add more if it drops.  -- And I don't yet.  Not even close.
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