Facebook shares at $4,000 each!

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So it's official. I now own a portion of Facebook, even if it's a very tiny fraction of the some 240 million shares now on the market today, the initial public offering.

The opening price this morning was at $42 per share, but even before they went on the market, some wealthy investors were already jockeying for their own piece. In one extraordinary case:

From the Wall Street Journal:

Knight Capital Group, one of the biggest aggregators of US retail share trading, is seeing orders for Facebook come in from brokerage firm clients -- including one from an investor willing to buy the stock even if it rises as high as $4,000, according to managing director Steve Kay. Orders like this is one of the reasons Nasdaq will wait until 11 a.m. or later to release Facebook stock for trading -- the exchange and bank underwriters will wait until it's clear that there is enough selling interest so that the stock doesn't shoot to head-spinning levels straight away.

Should be an interesting ride. My favorite part of this story: CEO Zuckerberg's base salary for 2012 is set to be $1. Yes, $1, per year, with benefits set by share price and success of the company. After all, this makes a lot of sense, as according to Zuckerberg, Facebook was created not as a company but as a social mission. I'm hoping that such social missions are used as examples of how corporations should be run!

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I wish you well on your investment but the opening day numbers didn't live up to the hype. The Facebook user base is a marketers dream, but having traffic and making money aren't always the same thing. Is Facebook an investors dream or the next AOL? It will take a couple of years to shake out.

According to one report I read Zuckerberg emerged from the IPO with an estimated 17 billion dollars. Would it rude, or jealousy, to point out that every shelter for battered women in the country could be run pretty much indefinitely off a trust fund endowed with just one of those billions?

A similar setup would take the edge off the financial crisis felt after an axe-happy congress cut funding to Public Broadcasting to make the cultural shining lights of commercial offering, like 'reality shows', more profitable.

Figure a well run fund with one billion in assets might reliably pull in 60 or 70 million dollars every year, possibly much more, and do it every year, and it is clear one billion could do lot of good.

A major issue for science and medical research is funding, and the consistency of funding. Sixty millions delivered each and every year essentially forever will get you more in the long run than a billion dropped as one lump sum today. With funding established and certain researchers can focus on research instead of writing proposals and worrying about keeping their labs funded.

Way I figure it Zuckerberg could live life in style on a mere one or two billions and fully indulge his fetishes and eccentricities so he has a chance to set up fifteen of those funds and do a huge amount of good now, and for centuries to come.

There are big problems with adopting that as a model for executive pay.

For a start, unless there are substantial embargo periods, then it merely promotes short-termism. A CEO will merely ramp up the share price by, for example, blowing spare cash on a special dividend or share buyback scheme, sell all the shares he's been paid over the years, and then retire. Not good.

So you adopt substantial embargo periods. Then you get retired CEOs suing their successors for "destroying shareholder value". The only people who get rich are the lawyers. Also not good.

And as if that weren't enough, as suggested here:

http://www.independent.co.uk/news/business/news/top-executives-cant-und…

it may be that CEOs simply can't cope with anything more than a simple basic salary package.

By Ian Kemmish (not verified) on 21 May 2012 #permalink