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Facebook May Give Retail Investors a Shot

Allocations to online brokerages would be a rare opportunity


Over the past few weeks, I’ve received a variety of emails asking how to get shares of Facebook at the offering price. My response has been that it will be nearly impossible.

Hot IPOs mostly go to mutual funds, hedge funds and wealthy investors. But Facebook may be different. According to The New York Times, it looks as though Facebook will give retail investors a rare opportunity to participate. The move would certainly be in keeping with the company’s mission of “sharing” and “openness.”

There will definitely be a large number of shares available — Facebook plans to issue 337,415,352 shares. In fact, that number is likely to increase over the next week or so.

Where can you get Facebook shares?

It looks as though online brokerages such as TD Ameritrade (NASDAQ:AMTD), Charles Schwab (NASDAQ:SCHW) and E*TRADE (NASDAQ:ETFC) will get allocations.

There will probably be minimum requirements. For example, an investor might need to have a history of active trading with the brokerage. So a broker can use the Facebook shares as a nice bonus for regulars, which will hopefully inspire even more loyalty.

It’s true that many social IPOs have performed badly, such as Groupon (NASDAQ:GRPN), Pandora (NYSE:P) and Zynga (NASDAQ:ZNGA). But for those that have shown consistently strong growth, such as Zillow (NASDAQ:Z) and LinkedIn (NYSE:LNKD), the stock performances have been much better. No doubt, Facebook will be in this group.

The IPO is already getting huge buzz, and the current price range of $28 to $35 looks to be on the cheap side. In other words, it’s reasonable to assume that Facebook will have a nice pop on the first day of trading.

Brokers will warn clients to not sell the shares soon after the IPO, a practice known as “flipping.” The penalty? You may not be invited to participate in future IPOs. But if you haven’t had a chance to invest in such offerings in the past, does it really matter if you flip the Facebook shares? Probably not.

The bottom line: If you can get shares in the Facebook IPO, go for it!

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

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