5 Ways to Avoid the Next Facebook IPO Fiasco

by Keith Fitz-Gerald | May 29, 2012 1:00 pm

On the heels of the Facebook (NASDAQ: FB[1]) IPO fiasco, many investors are wondering how they can find the next best thing and avoid getting “facebooked” in the process.Tall order? Not really.

1) Look for companies with ideas that can be applied across a wide variety of industries.

If I had said this five years ago, you’d be looking for Internet- related startups or companies that can do “it” better, faster or cheaper.

Going forward however, I think the true innovation will be exponential progress that’s made linking living systems with their digital counterparts. Everything from synthetic biology to computational bioinformatics will grow a lot more rapidly than the broader markets.

So will key markets related to healing human illness, solving hunger and figuring out how to deliver potable water to broad swathes of the planet.

No doubt there will be tremendous ethical challenges along the way, but I believe we will see the line blur between what’s needed to live and how we actually live our lives.

Though it’s hard to imagine given the state of the world at the moment, I believe a fair number of the best up- and- coming investments will be outside the traditional first- tier markets of the United States, Europe and Japan.

In fact, I’d bet on it.

2) Don’t confuse the ability to organize or share information with the ability to generate revenue

One might lead to the other but they are not the same thing.

The way I see it, Facebook is a classic example of everything you don’t want[2] in a business. It is 900 million users who spend an average of $1.32 a year. Compare that to Amazon’s (NASDAQ:AMZN[3]) Amazon.com, , which clocks in at a much more valuable and consistent $36.52 per person.

Call me crazy, but I don’t think Facebook stock[4] will see the bottom for a while. As I wrote earlier this week, at best Facebook is worth $7.50 a share[5].

Revenue is slowing. Facebook doesn’t dominate the mobile markets[6] that are becoming the preferred consumer channel for tens of millions of people. And, in what is perhaps the death knell, startups are already cannibalizing Facebook’s user base.

The ability to “like” somebody is really no different than signing their yearbook in high school –only you’re using a computer and the Internet to do it.

3) Hunt for fringe thinkers working in their garages.

It’s not enough to think differently. The next big things will come from those thinkers operating on the fringes of what the rest of us consider normal.

 5 Ways to Avoid the Next Facebook IPO FiascoFor example, there’s a self-taught school dropout mechanic in Wichita, KS, named Johnathan Goodwin who turned the automobile industry on its ear by figuring out how to convert gas- guzzling hummers into biodiesel trucks and 100 mpg hybrids. Detroit said it couldn’t be done yet his company, H-Line Conversions[7], proved them wrong.

Don’t forget that Bill Hewlett and Dave Packard started Hewlett Packard (NYSE:HPQ[8]) in their Palo Alto garage. Incidentally, their first product was not a computer but an audio oscillator Walt Disney (NYSE:DIS[9]) purchased to make the film Fantasia.

Then there’s eBay (NASDAQ:EBAY[10]).

Now an institution, eBay has created several millionaires like Jordan Insley and Sarah Davis. Insley has sold more than $8 million worth of electronics via eBay, while Davis has moved more than $4 million worth of designer handbags online. Many eBayers operate from their garages quite literally.

Steve Jobs and Steve Wozniak also built the first Apple (NASDAQ:AAPL[11]) computers in Jobs’s parents’ garage. And the rest, as they say, is history.

4) Be a “nowist” instead of a futurist.

Joi Ito, Director of MIT’s Media Lab and an early stage investor in both Twitter and Flickr, notes that the ability to respond to suddenly emerging trends is key.

I agree.

It’s one thing to identify long- term trends, but it’s entirely another to understand the moves you need to make ahead of time.

Consider what’s happened during this financial crisis.

Most investors were totally unprepared for the chaos in 2007 just as they were in late 1999. On the other hand, those who had prepared for the unexpected did just fine, including many Money Map Report subscribers.

Why? Because they invested in companies that had strong international sales, diversified assets, competent management and healthy cash flow. In other words, the “glocals” I’ve favored and will continue to favor until this mess resolves itself one way or the other.

These are the companies that are quite literally prepared for anything. Many, like ABB (NYSE: ABB[12]), CNH Global NV (NYSE:CNH[13]), SPDR Gold Shares (NYSE:GLD[14]), and iShares Silver Trust (NYSE:SLV[15]) actually melted-up in the triple digits.

Now, with the markets getting ready to roll over again, we’re preparing to repeat the process if needed.

5) Watch people and travel if you can.

I got started people watching with my grandmother, Mimi. You’ve heard me talk about her before.

She was widowed at a young age and managed to turn a small life insurance settlement into the money she needed to live out her life in style by becoming an extremely savvy self-taught investor.

We used to go to malls, the country club and even to burger joints (her favorite) just to watch the sea of humanity that paraded in front of us.

At the time, I didn’t really understand what she was looking for. Over the years, though, I began to understand Mimi was also watching how and what people bought.

Were they more interested in bulk purchases? Did they favor ultra-expensive goods or counterfeits? Were they paying in cash or whipping out credit[16] cards?

She paid particular attention to folks she referred to as the “most important consumers on the planet”…our middle class. Mimi reasoned that what and where they were buying told her a lot more about the state of the economy than any “five dollar dandy” in a suit on Wall Street ever could.

To this day, that’s why I watch the same- store sales for Wal- Mart (NYSE:WMT[17]) and McDonald’s (NYSE:MCD[18]) very closely, among other data points .

And, when I’m travelling, I go out of my way to plunk down in a local shopping mall if I can.

Sometimes this involves luxury goods carried by those stores in Shanghai’s Xintiandi shopping complex or along the Avenue des Champs-Elysees in Paris.

Other times, it’s simply a Publix (PINK:PUSH[19]) Market in Sarasota, FL, that catches my attention or the Vivre near our home in Kyoto.

Either way, the cross section of humanity I see helps me recognize patterns that, in turn, represent opportunities others don’t yet see or recognize.

T here are all kinds of ways to spot the next big thing. No one data point is going to present the single “aha” you need, but together they may form a massive blinking sign.

I hope I’m smart enough to “see” it.

Endnotes:
  1. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  2. everything you don’t want: http://investorplace.com/ipo-playbook/5-sobering-thoughts-about-the-facebook-ipo/
  3. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  4. Facebook stock: http://moneymorning.com/tag/facebook-stock-price/
  5. at best Facebook is worth $7.50 a share: http://investorplace.com/2012/05/facebook-stock-is-worth-7-50-a-share-at-best-fb-aapl-goog-ms-gm-gs/
  6. doesn’t dominate the mobile markets: http://investorplace.com/ipo-playbook/the-good-and-the-bad-of-facebooks-mobile-business/
  7. H-Line Conversions: http://www.hlineconversion.com/
  8. HPQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HPQ
  9. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  10. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  11. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  12. ABB: http://www.google.com/finance?q=NYSE%3AABB
  13. CNH: http://www.google.com/finance?q=NYSE%3ACNH
  14. GLD: http://www.google.com/finance?q=NYSEARCA%3AGLD
  15. SLV: http://www.google.com/finance?q=NYSEARCA%3ASLV
  16. credit: http://moneymorning.com/tag/credit
  17. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  18. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  19. PUSH: http://studio-5.financialcontent.com/investplace/quote?Symbol=PUSH

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