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One of the biggest mistakes of our outrageous predictions last year, was Facebook, where we expected the stock to stay in a $27/29 range. We couldn’t have got it any more wrong if we tried, which in itself is quite funny, as you will see below.
Marketing on Facebook of course. This was something for example, that we as a business had not engaged in. This year we have. It worked well – in fact so well, many of our competitors decided to copy us and do the same. This has led (not just down to us) to a massive swelling in revenue for the social media behemoth.
This is a trend that is likely to continue, certainly into 2014, but may then stall. Why – well looking at some of the financial analysis ratios, FB is on a massive PE multiple ie its price/earnings is very extended. Now PEs aren’t everything but they can give a reasonable feel for where a stock is at versus its peers. There is no doubt that the FB share price has moved ahead strongly, based on the revenue surge seen within the business.
However, markets are forward looking and perhaps now, are pricing in what is to come. Where that leaves us for next year, of course, is the requirement for more growth to support price movement up. This may prove more challenging. That said, FB is very well placed in the new digital era, where online marketing and particularly social media, play a greater role in information gathering and the sales and marketing process.
What’s more, in such a cutting edge sector and business, there is always going to be something new and exciting in the pipeline. That sort of thing can be a real game changer. As such, a $45/50 trading range is likely to provide good opportunities for covered calls, while a break to the upside, may provide more aggressive trading opportunity.
Trading and investing is not about predicting what is going to happen, it is responding to what is actually happening and seeking to profit from that. In the case of Facebook, our prediction was wrong – but so what! In our trading activities with our clients, we had a few different trades on the stock, year to date, of which one, the recent closed iron condor delivered a gross 40% plus return. That is more important than anything. And, as the old saying goes, “do you want to be right, or do you want to be rich? After all, they are not the same thing”
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