A number of years ago, there was a market guru named Joseph Granville who came up with the phrase "bag holder". I've always loved the term because it really describes exactly what's happened to a lot of investors in social media these days. Yes, they've been left holding the bag and the bag has little or nothing in it!
Social media has been decidedly unsocial to investors. So what's the ahead for the likes of Facebook, Zynga, Groupon and other public social media companies?
Let's take a look at Groupon first. I think that merchants really don't want to discount to such a degree that they lose money on promoting their businesses. The people who use Groupon don't come back. So the basic business model has a fundamental flaw as it is being repudiated by the very companies it was supposed to help.
Zynga, which is a game company, has to constantly come up with new winning games and that is incredibly difficult to do in this day and age. I think their model is going to marginalize over time and the growth that they were once projecting is not going to be there.
We didn't forget about FaceBook. Here we have one of the biggest IPO screw ups I've ever seen and everything going wrong at once for a company investors couldn't wait to own. Do they have a model that can grow from here, or will they see their base of users migrate to other sites? And more importantly, will the next generation of users still consider Facebook cool? We somehow doubt it.
Do you think Mark Zuckerberg of FaceBook regrets going public and considers it a mistake? He did have a lot of pressure from early investors to go public, many of whom have now bailed on the company. The most recent high profile investor to leave was Peter Thiel, a FaceBook board member who dumped over 20 million shares, which represented 80% of his holdings.
Regardless of what happens to theses stocks, we continue to trust in our Trade Triangles to keep us out of harms way and to guide us to the profitable markets.
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