Facebook's Comeback Story: A Trading Lesson From Benjamin Button
Syncubate | Sep 08, 2014 01:37AM ET
Based in part on the short story by F. Scott Fitzgerald, The Curious Case of Benjamin Button is a memorable film that stands out for its distinctive narrative of a man that ages backwards, yet who still experiences the joys and sorrows of life that we all grow accustomed to with time.
“You can be mad as a mad dog at the way things went. You could swear, curse the fates, but when it comes to the end, you have to let go.”
— Benjamin Button, "The Curious Case of Benjamin Button," 2008
There are many quotes from the film that resonate long after its viewing, but one in particular is very much applicable to being a successful trader.
At first, these words may bring to one's mind a broken relationship from the past that never really had a closure, a friendship that didn't endure the test of time, or a career pursuit that didn't come to fruition for whatever reason.
In truth, these types of life events are very likely what Benjamin Button was referring to. Nonetheless, his words are equally valid to navigating the world of the stock market.
This is because the stock market is a manifestation of human perception in reference to what is and isn't deemed to be valuable at any given moment. If a stock is favored and there is a positive outlook surrounding it, more often than not this perception will be reflected in a rising share price and increasing market valuation over time.
But our sensitivities are prone to change, and in order to endure, we as traders have to accept this fact and apply it in our risk/reward assessment of potential market opportunities. We must learn to the media hype leading up to the IPO.
Selling pressure continued throughout that summer, as seen on the weekly chart above. The price action was indicative of the fact that investors were doubtful about Facebook's IPO market valuation , which was over $100 billion at the time.
FB eventually went down to as low as $18 a share in September of 2012, before consolidating in a broad trading range between $20 and $30 for some time thereafter.
It would not be until July of 2013, when the company reported a surprise earnings beat, that the market's perception changed from being one of predominant uncertainty to one of overwhelming positivity.
In September of 2013, nearly a year and a half after its IPO, FB finally surpassed its previous $45 all time high. From that point forward, the stock would never again close below that level on the weekly time frame, and has been on a steady climb upwards ever since.
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Facebook is now valued at over $200 billion by market participants. The stock closed at all time highs last week, finishing at $77.26 a share.
For traders that heeded Benjamin Button's words and could let go of FB's disappointing performance early on in its Wall Street story, a profitable trading experience could have been realized in recognizing the stock's comeback and the market's positive perception shift towards the company beginning in the Summer of 2013.
And like the character of Benjamin Button, Facebook's stock just seems to be getting stronger and more vibrant with age.
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