'Facebook shares have traded on secondary exchanges like SharesPost and SecondMarket since early 2009. Prior to the social network's May 18, 2012, initial public offering, though, they were only available to accredited investors: banks and funds with assets over $5 million or individuals with a net worth above $1 million. Securities laws prevented small investors from buying Facebook shares prior to the IPO. As it turns out, the SEC was doing those investors a big favor.
On secondary exchanges, Facebook shares traded above $30 through 2011 and above $40 for most of this year. Since going public, the price has fallen 31% to $26.26 today. The last time Facebook stock was valued at that price was in December 2010.
Many observers thought the greater fool theory would apply, that small investors would rush to buy Facebook after its IPO. But small investors weren't the fools this time. Anyone who bought Facebook shares on a private market and didn't manage to sell in the first few, glorious hours after the public offering - when the stock traded above its $38 per share offering price – is out of luck for now.
Secondary markets provide a valuable service in trading shares of private companies, but they are much less liquid than public markets and, as the Facebook offering showed, not terribly good at determining how valuable these companies truly are. Not only did Facebook's IPO confirm, as some had feared, a new tech-stock bubble; it dashed a belief among experienced investors that the company was worth far more than it actually was. And this belief lasted for well over a year. In time, Facebook may prove the private investors right. If the company addresses the concerns weighing down its share price, its value could rally to record highs. But it's not clear how long that would take. In the meantime, the stock is getting cheaper by the day.......'
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