By Christine Romans
Should you buy Facebook shares? Maybe the better question is CAN you even buy Facebook?
Facebook starts its road show this week, meeting with potential big buyers of its stock, mainly Wall Street banks. It plans to sell 337 million shares of the company at $28 to $35 a share. A final price will be set the night before it begins trading on May 18th.
How Facebook's IPO will work
1. Underwriters have first chance to buy
2. Institutional clients get access
3. Retail investors buy in last
Here's how it works: Institutional investors who are underwriting the IPO -- mainly big banks and brokerages -- get the first crack at shares. Most of the time, their shares then go to their top clients: hedge funds, big money managers and insiders. They get the IPO price.
Then we get our chance. Usually brokerages only set aside 15% of their initial offering to retail investors to get in at the IPO price. Facebook has reportedly added E*Trade as an underwriter so there's a hope that more regular people can get the IPO price.
Everyone else gets in when it starts trading on the Nasdaq (ticker symbol FB) and you get whatever the market price is.
The bottom line: That $28 to $35 range is not likely to be around when the average investor gets in.
Still, many of you are asking me how to open a brokerage account so you can get in on the Facebook craze. Facebook is an investment, not a get-rich-quick scheme. Know what you think the company is worth, and place an order for the stock at that price. And keep in mind, the most famous investor in the world, Warren Buffett, says he does not like to buy public offerings and won't buy this one. Early investors will be the ones printing money on May 18. There is no guarantee Facebook shares only move higher.
Watch Your Bottom Line at 9:30 a.m. ET this Saturday. We’ll examine how an individual investor can get the IPO price, and we’ll talk about where an investment like Facebook fits into a healthy investment plan.