I thought this lockup expiration would play out differently for a number of reasons:
- The entities that were eligible to sell are the same that sold shares in the IPO so there was less urgency to take something off the table
- Microsoft was one of the companies eligible to sell and I do not believe they are in a rush to sell their remaining shares
- The short sellers were already heavily anticipating this lockup expiration.
- From a game theory perspective it made sense for these firms to allow a short squeeze to occur and then start dribbling out shares or do a secondary. The roster of holders were mainly large venture capital firms such as Elevation Partners. I was not expecting a race for the exits.
I went long Facebook yesterday on the theory that the lockup expiration was being over anticipated. I did not believe these large firms would start a rush for the exits, but would be more methodical in their selling.
I took a 5% loss in my Facebook trade this morning. I was clearly wrong in my assumptions. But that was not the reason I believe I made a bad trade. The reason I made a bad trade is that I did not believe in Facebook from a fundamental perspective. In other words I veered from the type of trades I typically do. I have done many trades where I take crowd psychology into consideration but I generally believe in the companies fundamentally. I will chalk this up as another expensive lesson courtesy of Mr. Market. Stick to my knitting.