Facebook Makes Dumb Smart.
Uncertain regulatory pressures – and backlash against social media – is forcing investors to doing the dumbest things.
When it comes to Facebook, it appears, we all must get one with being dumb.
In case you hadn't heard, Facebook (FB) is facing some tough luck. After years of mocking a full spectrum of copyright, fair trade and business practice regulations -- now it can be finally said: "social sharing" is theft -- Facebook got into serious hot water with American regulators. News of election rigging via an off-shore social-media marketer called Cambridge Analytica forced the Washington DC political establishment to do what every industry before it has tried to do with Facebook: Defend itself.
Company CEO and co-founder Mark Zuckerberg was dragged before Congress, earlier this year, to face what is shaping up to be a 21st-century reboot of the 1980's breakup of the phone monopoly AT&T.
Not even a nice dress suit was enough to fend off Washington's clear signal to Mr. Zuckerberg: More regulatory intrusion was coming for social media. Not less. And that raised a full spectrum of questions for major investors who probably own some sort of exposure to this stock, whether they realize it or no. Recorded institutional participation is something ridiculous like 75 out of every 100 shares in circulation. And that is just direct holdings. If you bake in managed funds and ETFs, oh boy. Watch, this vertically-integrated information giant is held by pretty much everyone, everywhere. Facebook equals exposure.
What Federal Regulators have in mind for this massively-held ticker, nobody knows. So far, only the dumb ideas are getting traction. Insurgent groups like Freedom From Facebook are calling for breaking the company into sub units like WhatsApp, Instagram, and Facebook Messenger. And that is certainly possible. It is easy to imagine. But of course it won't solve the core problem of how the centralized surreptitious collection of information and selling it to the highest bidder is now ingrained in business culture.
To us, it is the publishing and distribution arms that need to get broken out from the data and collection entities in Facebook. The model here is how movie theaters are kept out of the hands of movie studios or spirits and wine makers are required to remain separate from liquor distributors and retailers.
There is a reason why car franchise laws make it all abut impossible for car companies to own dealers. Unless of course, they are Tesla, which is probably going to have to change, as well.
The coming restructuring of the Information Age is what defines the Post-Information Age. Be ready.
Following The Facebook Mob
What, then, do smart people do to get paid with FB, the ticker for Facebook. The answer, from the smart people we spoke with, appears to be to do the absolute dumbest thing possible: Follow the herd.
The play here, at least according to the smart minds we spoke to, is all about execution, proper management of sentiment around this stock. And then having the courage to sit back and do exactly what everyone else is doing. It is harder to do than it looks.
Here is the current strategy:
Set up as best an trading execution contraption as you can possibly find. The sentiment out there is, one cannot get too aggressive in finding the fastest and most powerful means to get trades done, especially when panic sets in. If there is ever a time to reconsider discount trading options like E-Trade, this is it.
Next is to understand, that most of the first 5 to 10 percent of a slide in a large tech stock -- especially deeply traded information tickers like Facebook -- is probably due to blind social media and news sentiment analysis tools that are simply trading automatically on the "negativity" -- whatever that means.
So when whatever rumor filters our about Facebook's restructuring and the sentiment sours, the stock should start to slide. So simply sell. That's where your pricey powerful execution gets you out of the position before disaster strikes.
Then, like in any panic, you are out before the bottom of the run-off. And then it's all about elegantly sitting back and doing ... exactly nothing.
Just wait. And wait. And wait some more. It's harder to do than it looks, apparently.
When enough people start buying the stock again -- because what else is their to bet on these days -- simply press the Buy button, right along with everybody else.
This kind of strategy used to be called "Video Game Funds" back in the day. It was that kind of basic idiotic play that was supposed to be automated away when computer-driven trading flowed into markets decades ago.
But in our messed up Post-Information Age, this idea of selling on the bad news, buying on the good, really is how the serious bettors are profiting from massive companies like Facebook.
The ploy is so obvious that essentially anybody can do it. Let's chart it out.
Charting Our Own Foolishness.
Above is as secularized a presentation as we could make for Facebook's equity: The weekly moving-average mondo-chart for the ticker "FB." See the week-by-week high, low and close candlestick chart, the weekly 50- and 200-day moving average, some convergence charts, and then our favorite non-stat of all time "Relative Strength Index?" (Like Facebook arm wrestles the Dow Industrial and one is pronounced "relatively stronger" than the other? )
It's not hard to see the story here: Since 2016, nothing but love has poured into this ticker. That is, until Congress called in Mr. Zuckerberg, the sentiment turned negative, the stock got sold off.
And then about two months later, when the smoke cleared, investors poured back in. A great example is Steve Mandel's Lone Pine Capital, which raised its stake in Facebook 75 percent in Q1 of 2018.
This throw-back Point and Figure chart shows the exact story of investor sentiment: Daily buyers outstripped sellers, until the past month. Then demand returned. And the long-term "buy" button was pressed once again.
To make sure there is no confusion, here is the Point and Figure chart for weekly price changes. Nothing but buyers. All day long. All year long. Year and year out.
Can anybody argue that no matter what the Federales do to Facebook, that this company will do nothing but always be here? AT&T still is.
And making money from that coming restructuring will be all about cynically, coldly, and with real contempt, be just slightly less dumber than the next fellow.
