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Fund expert: Don’t rush to buy Facebook

FundExpert.co.uk founder and Dennehy Weller managing director Brian Dennehy says investors should not rush in to buy Facebook after it floats on the stockmarket.

In a report about the technology sector, Dennehy says investors should be wary given the volatility in markets at the present time.

Facebook is expected to be valued at over $100bn as a result of its initial public offering which will take place on May 18. On May 15, it raised the IPO price from $28 to $35 per share, to $34 to $38 per share.

Dennehy says: “It looks like retail investors won’t be able to buy at launch. Should you rush in once it is floated? At whatever price you can get? No. The markets are very volatile right now, driven by the euro crisis.

“Remember the lesson of Groupon – they went to a premium of 55 per cent on the first day of trading, and are now 45 per cent below the offer price.”

There has also been commentary that Apple’s share price is a bubble and concern over its high representation in funds. Dennehy says Apple’s share price, which currently stands at £5.46 a share, is not a bubble.

Dennehy says: “Real bubbles only exist in asset classes, not just in single share prices. The bubble prequisites of extreme investor and extreme valuation are also missing.”

He explains there is not evidence of extreme demand for Apple stock from investors, which should not be confused with high demand for its products.

Dennehy says: “In terms of investor behavior, we see no evidence of extreme demand. Nor is the Apple valuation at extreme levels. Both need to be present for a bubble.”

His caveat is to beware of Apple because it is a big constituent of all funds.

Chelsea Financial Services managing director Darius McDermott says there has been questions over a bubble forming in technology sector as a result of the market hype surrounding Facebook.

He says: “LinkedIn’s IPO and inflated share price last year made people nervous and Renren, China’s equivalent to Facebook, saw its share price drop dramatically after it went public last year.”

McDermott adds: “I don’t think we will see another bubble, like the one we saw in 2000. Back then, companies were merely burning through their cash and had little or no earnings.”

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