HN Explorer

Ask HN: Is it a good idea to invest my lifesaving in facebook shares?

12 points by throwawaywe4343 ↗ HN
I am 25, and over the past couple[more like 6-8 years] of years have accumulated a net worth north of 450k in liquid cash. I do not have much knowledge of the stock markets besides what the average joe knows. Over the next couple of years I am looking to take it easy, quit my consulting job, and work on some stuff on my own, and with that in mind I wanted to maximize my return on my savings. I have/had been too consumed in my job to learn about the workings of the stock markets, and as such I do not want to be a stock whiz kid.

I have been considering buying facebook shares on second market for a couple of months now, and the prices are now around 25-30 range for a min of 10k shares, and though some mild research suggests that big names are not investing at these prices as they seem too inflated [I think there was an article on HN regarding the same]. Plus there is all this talk of a bubble, so I guess I am curious to know whether any of you would buy facebook stock at this stage, or if you have in the past, and/or does this sound like a smart/foolish idea.

This would be a sizable portion of my savings from the past decade of my life. I do not have any other assets like houses, etc, and after this, I would have around 100k left over to live for a couple of years/ till the IPO? My burn rate for living is pretty low. I stay with my girlfriend who has a considerable annual income, and as such our expenses aren't all that much. I still need to convince her, but I just wanted to get your feedback/advice/suggestion.

Thanks.

15 comments

[ 3.4 ms ] story [ 49.9 ms ] thread
geuis
NO. Hell, if you have that kind of cash saved up consider doing some minor angel investing. Spread your money out among a handful of promising startups and you could get a vastly greater turnaround on your investment. You'd not only be doing a greater deed by giving new companies a legup, you'll be doing a slightly more responsible thing too. Do research on new YC companies and see which ones are most promising, and focus on them.
Osiris
If I had that kind of cash, I think I'd probably turn toward angel investing as well. It seems that returns can be significantly higher that most stock transactions.

However, you did see how Google stock skyrocketed after their IPO; Facebook will (I think) do the same, so it's likely a good investment but I certainly wouldn't sink my life savings.

Hell, I just wish I had savings at all!

sushumna
Its always better to invest in multiple areas. One is Angel investing (check with PG if he is willing to join you as YC partner :), one might be stocks of Google/AAPL (if I were you), Gold and some charity(increase your positive life Karma..as we call it in India)
AN447
Don't you need to be an accredited investor (USD $1M - in liquid assets) to trade on second market.
jarin
You don't qualify as an accredited investor with only $450k of savings, so you won't be able to angel invest or invest in SecondMarket shares.

Start off by contributing the maximum amount to a Roth IRA every year, even if it's just for the tax deduction.

Personally, after that I would put about 25% into a no-load index fund, and the rest into high-interest savings (like ING Direct). I would optionally invest no more than 10% of my savings in speculative stocks.

The nice thing about this setup is you can make a decent compounding return with your index fund and you won't lose the farm if it tanks, but the majority of your money is immediately available in case you need it for your side projects or just want to blow it on a vacation (and you won't have to pay the higher taxes for cashing out stocks early). If you don't need it, it's at least not sitting around doing nothing.

badkins
You don't get a tax deduction for contributing to a Roth IRA. And if you have high income (above 100Kish) you won't get a deduction for a traditional IRA either.
triviatise
You can form your own company then contribute up to 49K into a SEP IRA. There are some complexities around self employed which have limits of 18% of net profit. Still you can contribute a lot more than a 401K or IRA
arn
Definitely not. And despite the other calls, angel investing is a terrible idea as well, imo

$450,000 may seem like a lot of money, but in the grand scheme, if it's your entire life savings, it's not. Investing in one company on a secondary market or investing in a handful of startup companies is pretty much as high risk as you are going to get.

If you were a normal 9-5 worker, the traditional advice would be to invest for retirement using normal means. Index funds, stock market, bonds etc. I don't think that's a bad idea here.

Instead of going for big returns, which also comes with the more likely result of big losses. I'd suggest you invest in yourself. Use the money to be able to have a bit of a runway for your own projects. There will be expenses, but fortunately you have some funding for yourself. Hopefully you won't have to use most of that money before you start turning a profit on your projects. Then continue to save money for long term retirement, or maybe you'll want to buy a house eventually.

dstein
Forget what company it is for a moment. Buying private shares of a pre-IPO company whose financial details aren't known is a very risky form of investing. On IPO day you could quite literally lose 90% of your investment before being able to sell it. You say you're not a stock whiz... so if you don't know how to trade the public stock market where information is plentiful, what makes you think you can do it on the private market where you are an outsider?

Take one guess what Goldman Sachs and their buddies will do when this thing goes public.

stevenj
Invest in what you understand.

Also:

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

-Warren Buffett

crpatino
In a word, NO!

Others have provided more detailed advise that whatever I could. So, I will keep it simple. Grandma says: Never put all your eggs in the same basket.

Even if you are young and not risk averse, you may want to put not much more than 60% in high risk/high return investments. And the way to do it is to bet on a bunch of things that have potential. You should expect that 80% of those will flop, 16% will give modest returns and 4% will be big hits that turn in your original invest many times over.

If you recover 33% of the money invested on the flops, and your regular winners produce a 50% return, you need the big hit to be at least 12x you initial investment, so you just break even with the opportunity cost of putting your money on the bank. And you need many, many bets so you hit a 100x winner or better.

triviatise
Your best bet is an s & p index fund.unless you want to actively manage your portfolio.
abbasmehdi
My suggestion is to start your own accelerator program or join an existing one. Investing in FB is a blind bet. With $150k you could fund 8 promising companies while still having some left over for design and legal work.
DistortedRhymes
Definitely not. Check out the values of Bebo and MySpace and how much they are worth now. News Corp is trying to sell MySpace for $150million when they paid $500million for it a few years back. Don't bet that the same thing won't happen to Facebook.