Why Facebook Is the Absolute Worst Investment For An Entrepreneur!

So did you get your hands on some Facebook stock last Friday? Chances are you didn’t because, let’s face it, it was really only open to the “Billionaire Club” and to large institutional investors.

We simple millionaires, and up-and-coming millionaires, have to wait until things settle down and the Big Boys (and Big Girls) have made their killing. Or, at least that was the plan.

Well if you’ve been following the Facebook IPO story (and, really, who hasn’t been) you know that things sort of merely stumbled out of the blocks. The stock started trading at $38 and ended the first day at just around $38.50.

During all this there was one member of the Billionaire Club that didn’t take a bite of the Facebook apple. He had no interest at all. In fact, to my knowledge, he has never invested in the stock of a company at it’s IPO.

The investor I’m referring to is, of course, Warren Buffett. Those of you that know me or have followed me know how much I respect the way Mr. Buffett invests. This is what he had to say regarding the Facbook IPO:

“The idea that something coming out … that’s being offered with significant commissions, all kinds of publicity, the seller electing the time to sell, is going to be the best single investment that I can make in the world among thousands of choices is mathematically impossible.”

“I think the worst mistake you can make in stocks is to buy or sell based on current headlines.”

And Mr. Buffet’s long time partner, Charlie Munger had this to say:

“Anytime you get a truly extraordinary business — and it’s obvious it’s an extraordinary business — they’re the hardest ones to value because the question is, is whether five or 10 years from now that they will be as extraordinary as they are now.”

If you’re able to read between the lines and really understand what the two gentlemen who run the most successful investment company in the world are saying you can see why Facebook, (or any hyped up IPO for that matter) is the worst investment for an entrepreneur.

You see, there are really only two ways you and me can profit from the Facebook IPO.

1. We sell the shares we just bought at a profit

2. The company pays us a portion of their profits in the form of a dividend

But here’s the problem with #1: You don’t know if and when you will be able to sell at a profit and until then you can’t make any money.

The problem with #2 is a company won’t (and actually can’t) declare a dividend until they’ve made a profit. That’s why Mr. Buffet said, of all the investment choices out there a IPO (especially a hyped one) just isn’t the best choice.

So, what is the best choice for an entrepreneur?

You probably guessed it already.

The absolute best investment for an entrepreneur is in his or her own business!

Why, because you own all (or at least the vast majority) of the shares, you control if, and when, you want to sell and at what price. But most importantly, you have control over the cash flow and cash will always be king. Just ask Warren Buffett.

And, by he way, if you’re finding this hard to absorb, just think about Facebook again. The stock IPO’d and at the end of day 1 everyone who bought the stock was only about 50 cents per share richer.

That is everyone except for the entrepreneur, web designer Mark Zukerberg. He made about $18 billion that day!

Invest in your own business my friends!