Friday, November 08, 2013

Buying Facebook, Not Twitter

I don't care how talented or pretty you are, what really counts in life is timing and luck.  You can be as smart as Einstein, but if you're not in the right place at the right time, you're not going anywhere.  If you can't recognize opportunity, grab it and strike while the iron's hot, you're doomed to a life of hourly-wage misery.

Hey, I don't make these rules.  I just follow them.  Which is why, when it comes to technology investments, I throw all that financial mumbo jumbo out the window and go where the real money is:

Human irrationality.

Bear in mind I'm no financial genius.  I don't pretend to be.  I'm a branding guy, which means I'm really, really good at understanding what drives people to do the things they do.  As a consequence, I'm hired out by companies to get those same people to do the things those companies want them to do, namely buy products and services at a premium.

But I digress.  I'm really writing this to explain why I have invested in Facebook (again) and I won't touch Twitter's public offering with a long stick.  Neither decision has anything to do with the usual Wall Street or media hype.  Both are totally, completely driven by human irrationality, but that doesn't mean you or I can't leverage that insanity to our profit.

Here's how and why I've bought (and sold) Facebook, but why I would never put a dime into Twitter:

The minute rumors of Facebook's IPO began swirling, it was apparent that it was going to be the most over-hyped event in Wall Street history.  Everyone and his mother was lining up to buy Facebook stock, not realizing they were buying into hype, not financials.  It reminded me of the story about Joseph Kennedy selling all his Wall Street holdings just days before the 1929 crash.  The story -- if you haven't heard this legend -- is that while Kennedy was getting his shoes shined, the shoe shine guy started talking about which stocks were a good buy.  Kennedy figured that if a shoe shine guy was talking about the stock market, it meant the market was certainly over-bought, and promptly liquidated his holdings.

Human nature hasn't change much since then.  That's why I sat out the Facebook IPO, watching in amusement as millions of frenzied, uneducated Americans clawed their way to the front of the line to purchase Facebook stock at $45 per share.  By now, you know that Facebook stock made an abrupt turn at $45 and promptly swan dived into the high teens, which I thought was a fair price for an unproven stock driven by hype.  So I loaded up.  I didn't care about Facebook's public relations or Zuckerberg's sociopathic ineptitude.  I banked on the main engine driving Facebook stock:  human irrationality, including the fact that venture capitalists and hedge funds has no intention of letting the stock drop below $19 if they could help it.  I held the stock until it hit $33.  Then I dumped it, waiting for the next right moment.

Here's where I think the story gets interesting:

While everyone's looking at Twitter as "the next Facebook," I think they've got it all wrong.  Sure, the greed factor will play into the stock's price, but not for long.  In fact, over the long haul, I suspect Twitter won't last, while Facebook will.  The reason for that isn't greed, irrationality or even media hype.  In the end, what's likely to doom Twitter (as much as I enjoy tweeting and meeting people there) is the fact that Facebook offers permanence, while Twitter is ephemeral.  By that, I mean in order to benefit from a tweet, you have to be online, all the time -- or at least when a significant tweet is tweeted.  If you're not always on, you miss that tweet.  It's gone.  Forever. And nobody uses Twitter in the past.  Facebook, on the other hand, allows you to check in any time you like, to see what you've missed or what's going on at that moment.  Facebook is all about building and tracking histories, while Twitter only values the moment.

That one characteristic alone, to me, is why Twitter seems unsustainable, both as a medium and as an investment.  From my perspective, Facebook -- whether you like it or not -- is a large, planetary distribution system.  While more idiots invest more time, events and photos of their cats and lunches into their Facebook pages, Twitter offers nothing in the way of personal investment or building of value to its users.  Facebook is about building a monument to yourself; Twitter's value flashes by in an instant.

Over the long haul, Facebook can build out and upgrade its delivery system.  If Twitter can do that, they might have a chance.  If they can't -- and there's no indication of anything like that yet -- they'll end up just one more tech tragedy.  So while Facebook continues to lose it young, this-isn't-so-cool-anymore audience (and it is), Facebook's pipes and delivery structure will remain in use for a very long time.  That's why the hype phase for Facebook is just about over and might well be a long term buy, while Twitter may be a flash in the digital pan.

That's why I'm long on Facebook, but Twitter? Not for long.


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