The Market's Facebook Freakout

It’s the dog days of summer, and Facebook’s stock price is locked in the kennel. Investors are obsessing over everything that’s wrong with the social network. Mark Zuckerberg hasn’t figured out how to make money on smartphones. Several million of its nearly 1 billion active accounts are duplicates, according to the company, and another few million may actually represent businesses or automated software bots—or even pets. Employees will soon be free to sell their shares en masse. Top executives are leaving. And on and on.

It wasn’t too long ago—three months, actually—that investors saw limitless opportunity at Facebook and its social-networking brethren Zynga and Groupon. For Facebook especially, the proverbial glass wasn’t half-full, it was overflowing. Sure, it had issues, but investors couldn’t wait to make the long-term bet that Zuckerberg was building the next Google. As the stock hit $45 a share on its first day of trading in May, prevailing opinion began to flip. Since that peak, the share price has collapsed to around $20, and the IPO has become a symbol of hubris and mania. For Robert Shiller, the Yale economist and author of Irrational Exuberance, the mass delusion became obvious when a contractor he hired to repaint his dining room bought shares after the IPO. “That decision to buy Facebook was not an investment decision,” Shiller says. “It was a decision to become more than just a painter. Now he’s humiliated by it.” Shiller adds, “People don’t understand they are being drawn into some climax of public attention.”