Ever since Facebook announced that the company will have its initial public offering later this year, I have been inundated with requests from friends, relatives, and acquaintances asking how they can buy stock in Facebook on the IPO. These are people who have never talked to me before about investments, and many have never invested before in their life. Normally, if an investor is lucky enough to buy a stock on the initial offering, the investor is usually rewarded with a huge gain in the stock price during the first day or two.
So how does one get stock as part of the initial offering? It's not just luck, it's wealth. First of all, the three lead underwriters are Morgan Stanley (MS), J. P. Morgan (JPM), and Goldman Sachs (GS). Underwriters are the investment brokerage firms that raise money for companies. They are also in charge of the allocation of shares to the investor. The second tier underwriters are BofA Merrill Lynch, Barclays Capital, and Allen & Company.
So if you have an account with any of these firms, you might have a chance of getting some shares. Often, the underwriters will distribute shares to other brokerage firms, but with a popular offering like this, the allocation may be slim pickings. That's step one, the connection with the investment company. Step two is getting your broker to give you some shares.
According to a spokesman at TD Ameritrade (AMTD), they recently implemented a policy that you must have $250,000 in your account before you can be considered to receive shares of an IPO. That's the wealth part. Then if there is more demand for stock than are shares available, the firm would implement a lottery system to determine which clients would get shares.
Fortunately, there are other ways of buying shares in Facebook ahead of the stock offering, although the ownership of the shares would be indirect. One way would be to buy stocks of companies that have invested some of their funds in Facebook. An example is Microsoft (MSFT), which owns roughly 1.3% of the social networking giant. Of course, this ownership represents a very small portion of Microsoft's assets.
Another way of having some Facebook stock is through the ownership of mutual funds. WallStreetNewsNetwork.com has turned up over
20 mutual funds that own shares of Facebook in varying degrees. Morgan Stanley has several funds that own Facebook such as Morgan Stanley Capital Opportunities (CPOAX), Morgan Stanley Focused Growth (AMOBX), and Morgan Stanley Inst Capital Growth (MSEQX).
The T. Rowe Price family of mutual funds has over a dozen funds with Facebook stock, including T. Rowe Price Media & Telecommunications Fund (PRMTX), T. Rowe Price Balanced Fund (RPBAX), T. Rowe Price Blue Chip Growth Fund (TRBCX), T. Rowe Price Global Stock (PRGSX), and T. Rowe Price Global Technology Fund (PRGTX). Please note that for most of these funds, Facebook makes up a very small portion of the portfolio.
An alternative to investing in the mutual funds is to invest in the mutual fund management firm. T. Rowe Price Group (TROW) is the asset management holding company that manages the numerous mutual funds that own some shares of Facebook.
There are also a couple of closed end funds that own shares of Facebook. A closed end fund is similar to a mutual fund, in that it owns a diversified portfolio of stocks, however, mutual fund prices are based on the intrinsic value of the shares, called the Net Asset Value, whereas the price of a CEF is based on supply and demand and can trade way above or way below the net asset value. One of the CEFs is Firsthand Value Technology (SVVC), which has about 5% of its assets invested in Facebook.
The last alternative to buying the stock ahead of time is through one of the companies that handle private stock trading. Unfortunately, this option is only available to accredited investors. If you don't know what an accredited investor is, you probably aren't one.
According to the Securities and Exchange Commission, an individual accredited investor is "a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; or a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. If you fall into this category, then you could consider contacting SharesPost or Second Market, otherwise, don't even try.
To see a list of over 25 of the
companies that own Facebook stock, check out the free list at WallStreetNewsNetwork.com, which can be downloaded, sorted, and updated.
Will Facebook be a hot stock? With 845 million users as of the end of 2011, that's a lot of potential buyers. If just one percent of Facebookers buy just 100 shares once the stock goes public, that's 845 million shares being purchased. By the way, the anticipated stock ticker symbol for Facebook is expected to be FB.
Disclosure: Author owns SVVC. No recommendations of any of the above stocks is expressed or implied.By Stockerblog.com