back to article Few 'Likes' for Facebook from hedge-fund moneybags

Major US hedge funds are steering clear of Facebook stock, according to their second quarter filings yesterday. Famous investor George Soros has a bunch of shares, along with Steve Cohen's SAC Capital Advisors, John Thaler's JAT Capital Management and Chase Coleman's Tiger Global Management, which invested in Mark Zuckerberg's …

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Silver badge

and whose 401k funds have taken that 46% hit? Must be nice to play with other folks money. Facebook was never worth 100bn, apparently most of the finance world seems to have forgotten 2002-2002 when they lost something like 5 trillion dollars of other peoples money by investing of diamond toothed seamonkeys. May their crotches forever itch.

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Silver badge

sorry, 2000-2002 :-)

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This suggests that $100bn for the next MySpace was an overvaluation. Gosh!

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FAIL

Fool me once ... fool me twice ...

These are NOT the heady days of the 90's iNet bubble. Get real.

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Anonymous Coward

err

It's not about its perceived value, its about how much can be made by the volatility of the stock. If the stock price didn't move (either way) there wouldn't be any point in buying/shorting it. If the thoughts by the brokers are that the stock will move one way or the other, then they buy/short. The amount bought/shorted is a reflection of the confidence of the broker in their price change asumptions, not a realistic valuation of the company. If the stock isn't moving, then the market generally thinks its reached its natural price point and the risk/reward ratio isn't good enough to warrant the exposure.

That, plus Facebook is a load of old tosh :-)

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Silver badge

What I don't understand...

(and there are many things I don't understand)..

is - how is shorting legal?

If I go and borrow my friend's car, or laptop, or whatever, for a few weeks and sell it, I go to prison, even if I go out and buy a similar item to return to my friend at the end of the loan period. Why are shares any different?

The markets would be a lot more stable if people could only sell shares they legally own.

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Boffin

Re: What I don't understand...

Shares are not cars - a car is something tangible with a distinct history (ownership, service, whatever). One share however is pretty much like another - it simply indicates that you have a (partial) ownership in the company issuing the shares.

Put it another way. I borrow £100 from a friend, spend it to buy something, then a couple of months later I sell the thing and give my friend his £100 back. So long as I sold the thing for more than brought it I have made a profit. My friend however does not know or care what I did with the £100, or that for a period of time I did not have it in my possession - his only concern is that he got back what he lent me.

Shorting shares is a bit like the above, only I make a profit if the price of the shares goes down.

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Mushroom

Re: What I don't understand...

"If I go and borrow my friend's car, or laptop, or whatever, for a few weeks and sell it, I go to prison, even if I go out and buy a similar item to return to my friend at the end of the loan period. Why are shares any different?"

Goods are generally not fungible.

1 share of Facebook is exactly the same as any other (ignoring things like preferential shares).

A "replacement" share of Facebook might as well be the same as the original. A replacement laptop is unlikely to be unless it is factory fresh.

None of which matters of course because the whole point is that your scenario ignores the fact that you are using "borrowing" without any sense of legally binding terms. In essence if you were to go to prision it would be because the law does not recognise you as "borrowing" but "stealing". If you have a contract that says you are allowed to take ownership of the good for a period of time the end of that period of time you either return that good, an equivalent good or cash value then it's different is it not?

But please, don't let me stop you saying silly things.

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Anonymous Coward

Re: What I don't understand...

> If I go and borrow my friend's car, or laptop, or whatever, for a few weeks and sell it, I go to prison, even if I go out and buy a similar item to return to my friend at the end of the loan period. Why are shares any different?

Its legal if your friend lets you and as long as he gets his car back he is happy, especially as you're paying him for borrowing his car which he doesn't intend to use anyway.

If he asks for his car back early than agreed then obviously you'd not pay him but you'd have to get the car back within the agreed time frame, which obviously may cost but thats the risk you have to take, and you might find you can borrow a car from someone else anyway.

All exactly the same as stock...

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Re: What I don't understand...

Not defending short selling per se, although that too has its uses, but there are two positive uses for stock lending, which is the other side of the coin to short selling.

Firstly it allows 'your' fund manager to make money out of an asset - your shares - that is otherwise just sitting there, because s/he can charge a fee to the person who wants to borrow them. This means they can pay themselves higher bonuses improve your returns.

Secondly it improves liquidity in the market because it enables market makers to cover short positions that they legitimately take in the normal course of their business. Without that ability they would be less willing to trade and thus make it harder for you to buy and sell shares.

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Anonymous Coward

Re: What I don't understand...

Why is shorting legal? It's a necessary part of arbitrage which is generally about removing price disparities.

http://en.wikipedia.org/wiki/Arbitrage

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Anonymous Coward

Re: What I don't understand...

Ahh, thumbs down for someone actually knowing something about the markets. Good to see the burn the bankers brigade can't even take facts.

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Facepalm

"Shorting is a great way for funds to make money out of nothing."

I didn't think this was entirely true, although on the face of it it does appear to be the case as the Short seller is making money from a falling share price using shares they don't own.

I thought the person lending the shares to the Short seller received a fee for lending the shares otherwise they have no incentive to lend the shares in the first place to someone who will profit from the shares reducing in value during the loan period.

IANA Broker or Hedge Fund Manager mind you.

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Anonymous Coward

Re: "Shorting is a great way for funds to make money out of nothing."

Yes, the lender takes a fee. Many fund managers and pension funds will do this to make some extra cash.

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Anonymous Coward

Re: "Shorting is a great way for funds to make money out of nothing."

Exactly.

Frankly "Shorting is a great way for funds to make money out of nothing." is a crock of shite anyway. Look at the risk, if you buy something then the max downside is the cost that you've bought at. If you short something then technically your downside is unlimited, so your risk is higher along with having to pay to carry the position.

Things like the above tend to be banded about by those who have no idea about how things work along with being (anecdotally anyway) against the whole idea of shorting, while not knowing that a fair chunk of their pension income will come from exactly that or having the cost of their savings reduced by the practice.

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Silver badge

made at least $7m

BS BS BS.

You are saying that if they borrowed $27.7m worth of FB shares, sold them through a broker, and then 3 months later, bought $20.4m worth of FB shares, that the total of the broker fees for the sale, broker fees for the purchase, and short fees for borrowing the shares come to less than $300k.

Bull. Shit.

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Facepalm

Re: made at least $7m

Right, because everyone knows that financial companies moving tens of millions in a single trade with their own in-house traders pay the same fees that we mere peasants do.

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Silver badge

Re: made at least $7m

The short fees alone on $27m worth of shares over two months would be more than $300k. Way more.

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Stop

Groupon tat bazaa

You need to make a correction to this article - I have been reading The Register long enough to know that it's eBay that's called a tat bazaa - I believe the correct term for Groupon according to the official Register editorial guidelines is something like 'fish foot spa marchents' or similar is it not?!

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Ignoring for a moment that this was shorthand maths from the author to make a point and so not supposed to be precise the answer to your question is, in any case, that the fees would be much smaller.

Hedge funds make significant regular transactions and so wholesale brokerage firms compete like piranhas for their business. Transaction fees totalling 5 percent or anything close would be laughed out.of the market.

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Windows

Watch out on Thursday

Apparently there is a lock in period; in that certain shareholders (e.g. staff) couldn't sell their shares straight away and make a killing. That ends on Thursday and there are about 270 million shares that could in theory suddenly get dumped.

It will be interesting to see where the share price is at the end of play tomorrow.

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Happy

Ahhh Yes.

If it were me, I would have been short on the 270 mil shares already. Time to party like there is only tomorrow.

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Anonymous Coward

Like moths to a flame

Suckers rush in...where wise men dare not tread.

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Anonymous Coward

You have to love capitalism

I work in the markets but part of the concept of shorting really amuses me. You have to borrow the stock to short, as naked shorts aren't permitted, and often the stock gets borrowed from pension funds or insurance companies etc that are sitting on long positions. You pay to borrow said stock then promptly set about seeing it become less worthy, in fact the shitter it gets the better. Then at the end of it, if all goes well, you buy back the now shitter valued stock and hand it back to the original owner. Quite why they think they got a good deal out of the pennies you paid for borrowing versus the money they just haemorrhaged on the mark to market is beyond me. I'm sure some think that they are allowing the proper functioning of markets by facilitating arbitrage to work but gees.

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Re: You have to love capitalism

Because they are sitting on a long term position and don't want to risk that jumping every time the price moves?

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Anonymous Coward

Re: You have to love capitalism

Ah the old "long-term position" myth. Let me tell you that everyone in funds management etc is a long term investor until things start going south, at which point their end clients whose money it is become focused on very short time-frames indeed. Look at all the money that haemorrhaged from funds in the crisis as people would rather pull their money out than wait for the dust to settle even on "long-term" positions. I have worked both buy-side and sell-side and seen this in action. Long-term? Don't make me laugh. Mark-to-market is a killer in finance and short-term here-and-now is human nature.

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