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Tags: bogle | facebook | ipo | greed

Vanguard's Bogle: Facebook IPO a Classic Case of Greed

Tuesday, 22 May 2012 04:29 PM EDT

Those who got burned in Facebook's initial public offering can blame their own greed for the mess they're in, says Vanguard founder and retired CEO Jack Bogle.

Blame a willingness to invest in an overpriced fad of a stock, which plunged 11 percent the day after going public and sank an additional 8.9% Tuesday.

"This is a classic example, I think, of investor greed, including institutional greed, underwriter greed and company greed. The message to me is, when all the parties to a transaction action are greedy, this is the kind of outcome you can expect," Bogle tells CNBC.

"Don't fool around with new issues, new offerings, IPOs. Don't fool around even I go all the way to saying don't fool around with individual stocks. Nobody can predict their price performance, nobody can predict their future value. And while nobody can predict the future price of the total stock market, we can predict its future performance, which depends clearly on 100 percent on how the underlying American economy does."

Betting on a slower economy is much safer than betting on a stock price, which Bogle describes as "a dangerous game."

"Stocks can do what they wish and to some extent the market can do what it wishes," Bogle says.

"But when you look back at the grand wave of IPOs, the new economy and Internet and information age back in the late '90s and early 2000s, it's a fad. It's in the price of the stock and people are looking for a free ride upward in the New World. Truth be told, the Old World persists in making its reality felt."

Priced at $38 per share, Facebook shares plunged after going public on sentiment the price was too high, especially on concerns over whether the company can drum up revenue advertising to its 900 million users. Underwriter Morgan Stanley is catching particular heat for pricing the stock too high and selling too many shares.

"They issued too many shares and the market wasn't ready to absorb them; that's all there is to it. The market isn't ready to absorb it," says Michael Pachter of Wedbush Securities, the AFP newswire reports.

"The underwriters placed the stocks with people who really were not that committed to owning it, and so a lot of them sold it."

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Tuesday, 22 May 2012 04:29 PM
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