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The Weekly Wrap: Facebook & Barclays

A look at Facebook's share price slump, Barclays sale of BlackRock and emotional investing

Alanna Petroff 25 May, 2012 | 3:12PM


Securities Mentioned in This Video
Facebook (FB)
Barclays (BARC)

Stories & Reports Mentioned in This Video
PREMIUM: Analyst Research on Facebook by Rick Summer
Stay Away From Facebook and Retail
- Morningstar's Valuation and Analysis of Facebook
- Facebook a Future Advertising Force
- Facebook IPO: Hit or Miss?
- PREMIUM: Analyst Research on Barclays' Blackrock Sale by Erin Davis
- Video Interview: Emotional Traps Hamper Investors
- Avoiding Emotional Investing

Video Transcript
Alanna Petroff: Welcome to the Weekly Wrap. The markets were in rollercoaster mode this week and we saw some sharp swings up and down. But instead of focusing on the markets as a whole, we're going to look at three key stories and trends that are of particular interest this week.

So, we're going to start first with Facebook, then we're going to move on to Barclays’ sales of its stake in BlackRock, and we're also going to look at emotional investing.

With Facebook, we all know that the shares IPOed on Friday and they say quick pop up but then ultimately sank much lower. Rick Summer is the Morningstar Analyst that covers shares in Facebook and his fair value estimate for the company is $32 per share, which is about where the shares are trading right now. I spoke with him and asked him what he thought about the price movements over the last few days and here is what he had to say.

Rick Summer: So, it's been a bit of a surprise how quickly the share price has fallen since the IPO on Friday. One of the things we kept cautioning our investors and our clients, is when looking at the stock we felt that, number one, it was certainly overvalued. We had a fair value of $32 on the stock. The IPO price of course was at $38. I think two is, we still see a lot of near-term headwinds for the company and really the interesting thing is the trading that happened on Friday and this happened early since the IPO, it has not been related to what we think will be some of the headwinds that the company faces coming up.

Petroff: As an investor, you also want to be confident in the company that you are investing in. So is spoke with Rick about what it would take to make investors feel confident enough to push the share price back up above the $38 a share where it originally IPOed and here is what he had to say.

Summer: I think that the company needs a few things. I think that, one, a little bit more of a track record and some history around, ‘what does it look like from a quarterly growth perspective?’ I think, two, and this is more interesting long-term: the company needs to be able to have a clear and developed strategy around mobile. That's something that's not going to develop here over the short run and we wouldn't expect it to at the same time. What does that mean? Are investors going to be more long-term or short term focused? We encourage our clients to be long-term focused, but as long as investors are very focused on that short-term, we may still see continued weakness in that stock price.

Petroff: For more information about Facebook and to see Rick's analyst note about the company, you can look on the links below this video.

Now let's move on to the banking sector, because Barclays announced that it was selling its stake in BlackRock, the asset manager. I spoke with Erin Davis, who is the Morningstar analyst that covers the banking sector in the UK, and I asked her in particular why it is that Barclays was selling its stake in the company and why this was a good move for the bank. Here is what she had to say.

Erin Davis: We think that the main reason that Barclays decided to sell its stake in BlackRock is to prepare for the Basel III regulations which are being implemented on an ongoing basis. As result of the change in regulation, certain activities that banks engage in are going to be become more capital intensive and therefore more expensive for banks. This is especially true for complex institutions like Barclays that engage in more than just plain-vanilla banking activities. I think that this makes a lot of sense for Barclays. It's holding in BlackRock is going to become uneconomical in the future and it doesn't really need BlackRock in a way that it might need its investment bank or its commercial, retail banking operations. It's not really core to the business anymore.

Petroff: Now let's move on to emotional investing. We all know the markets were extremely volatile this week and as investors that can get you quite emotional. You see your money rising and falling with the markets. It can get very scary.

Now, Dave Fishwick was at the 2012 Morningstar Investment Conference and he talked about this topic of emotional investing. He is from M&G and he was one of the speakers. He went onto the stage and talked about how people follow the herd. Now it's part of our DNA, we want to follow the herd. But ultimately as investors that's very detrimental to your portfolio and your long-term investment goals. So, you can read the links below this video to learn more about his ideas of trying to avoid following the herd. There was an interview that I did with him. There is a link there. As well as a story I wrote about his talk, to learn a little bit more about avoiding emotional investing, especially during volatile times.

Now that's the Weekly Wrap. Thank you, for joining me this week.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.