I just heard one of the knuckleheads on CNBC remark that we are observing “wealth being created” by today’s Facebook IPO and that it is a good thing. By his analysis, America is better off today than it was yesterday and we should all rejoice. I need to rain on the commentator’s parade, however, and remind everyone that nothing is different today than it was yesterday except for the small number of people who are selling equity stakes in Facebook to others. While it’s true that certain parts of the economy will benefit as those getting rich from this IPO spend their newly received wealth – Maserati dealerships, wine stores, the local housing market, custom home builders – let’s not fool ourselves into thinking something is actually being created by this IPO and that the world is better off today than it was yesterday. All we’re doing with the FB IPO is moving money from the hands many into the hands of a few. Whether that is a good thing or not is open to interpretation.
This IPO is clearly a life-changing event for the newly minted millionaires and a few billionaires. Several investment banks, venture capital firms, and hedge funds will pat themselves on the back after today. But for anyone not involved in this transaction, this is nothing more than a sideshow. Those buying into the IPO, by the way, are making one tremendously optimistic bet on Zuckerberg, social media, and advertising budgets. I, for one, can’t see any way FB is worth $38 a share, but clearly others do. I’ll watch from the sidelines with great interest to see how this turns out, but I am expecting to see many regretful shareholders in the not-too-distant future.
The main message here, however, is that true wealth isn’t created out of today’s Facebook IPO. True wealth generation happens over time by the efforts of hard-working, capable, and creative people. So we can argue about whether or not Facebook owners created $100 billion of value over the last several years. And new owners of Facebook can hope that FB owners and employees will be able to further increase the firm’s value, allowing them to sell their shares at something above $38. But let’s not delude ourselves into thinking today’s IPO means anything. The world is the same, except that we now have one more way to gamble.