Picking Through the Picked Over – Part 1: Social

Picking Through the Picked Over – Part 1: Social

I don’t spend a lot of time in the stock market.  In spite of my background as an MBA, these days I tend to feel that there are better opportunities elsewhere (real estate for safety and small companies for growth).  That said, as the future of IT (cloud and social) begins to roll on to the exchanges, it will be interesting to follow them.  What I’ve decided to do is take a couple days and give a few thoughts on the market generally and a few companies specifically in each space.  Update: Link to the post on Cloud stocks

Social seems like the logical one to start with.  Some of the bigger pure social companies are just hitting the markets; Yelp (YELP) went public last week, Zynga (ZNGA) and LinkedIn (LNKD) went public last year, and of course Facebook is on the horizon.  Those four companies give you pure play bets in social.  Google, Apple, Pandora, eBay and other public companies can also be used to back the market.  I think there are two ways to view the market right now:

  1. Social is part of the future, it just is.  If I’ve said it once, I’ve said it three times (coming to enterprise IT, coming to personal IT, and as an overall trend).  Who doesn’t want to have a nice stake in a grwoing industry?
  2. The market for social stocks is too immature and possibly overvalued.  Of the four companies I mentioned, 3 haven’t been public long enough to have a P/E ratio and LinkedIn (LNKD)’s is 740!

So what’s the play here?  Well, I am sitting on the sidelines.  If you insist on playing the game try to set up an index like what they did on StockTwits.  If I were going to do that though, I would try to make at least 50% of the portfolio pure play companies.  Actively move companies in and out as they gain and lose market share so that it’s a bet on the market instead of the companies.  This means buying early and selling early, working with enough money to bury some transaction costs and making a long-term play.  If (as some people suspect) the market is preparing to give back some value these highly speculative spots will be hit hard, it could be a long storm to whether.

If you must buy a single stock, I would look at Facebook.  The data that they already have should be treated like assets, making them one of the few companies in this space that couldn’t be wiped off the face of the planet by one bad product.  You’re going to pay for their potential, but a lot of times market under value security.