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The Social Investment; The Woman Behind Facebook's Success

Aired May 19, 2012 - 13:00   ET


ALI VELSHI, CNN ANCHOR: You have been on Facebook for years, but the story for investors has just begun. Welcome to YOUR MONEY. I'm Ali Velshi. Christine Romans is here with me.

We've been following this company with one question in mind, after a troubling opening day for its stock, can Facebook live up to the hype?

(voice-over): Facebook, the most anticipated tech talk in history, from a startup in a dorm room to a global community approaching a billion people. Facebook is the next paradigm shift on the web.

First, the internet was defined by the portal, a one-stop shop for everything you needed. Then came search, a single place to answer any question you could possibly ask.

But Facebook represents something different, the idea that the internet and technology can bring people together and together the community you choose curates your entire journey through life.

But is this the most important tool in the world or a fab that's peaked. Can Facebook live up to the hype? If it really is a paradigm shift, can Facebook dominate it?

CHRISTINE ROMANS, CNN ANCHOR: As no other network can, we brought together CNN's best time covering this story, Dan Simon at Facebook headquarters in Menlo Park, California, where Mark Zuckerberg remotely rang the opening bell on the Nasdaq on Friday.

Alison Kosik at the New York -- Nasdaq in New York and Felicia Taylor at the New York Stock Exchange where she has have been talking to traders.

Three men who invest for living, we'll ask them whether Facebook is a good investment for you. Ned Riley, chairman of Riley Asset Management, probably not a surprise for him, Craig Shapiro, investor with the Collaborative Fund and an early Facebook investor, and Matt McCall, president of Penn Financial Group.

VELSHI: All right, Dan, let's start with you. Let's leave the stock aside for a second. That's a big topic. But this is about the company.

It was amazing to see thousands turned out in Menlo Park of Friday morning to see Mark Zuckerberg kick off Facebook's first public trading day.

Talk about to me about the mood there and how it happened. What happened to the mood when that stock failed to soar like expected?

DAN SIMON, CNN CORRESPONDENT: Well, first of all, as you can imagine Silicon Valley was buzzing over this stock debut for weeks so much anticipation all across the country. But here, you know, you could just feel the environment. You can feel the electricity.

I did speak to a Facebook executive about Mark Zuckerberg ringing the bell. He said the energy in there was off the charts. It felt like a rock concert, especially after coming off an all-nighter.

They had a hack-a-thon where they were up all night trying to come up the newest and greatest ideas for Facebook and then they all met in the public square to usher in this new era. It was quite an event to see.

VELSHI: All right, Dan, again, this still remains the story of the company. But it soon changed through the course of the day into the story of the stock. That's where we're going now.

ROMANS: All right, let's bring in Alison Kosik at the Nasdaq. Alison, it was a key question everyone in social media is asking now. How do you make money on technology that changes the world because it didn't seem like a super sure bet today?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Well, you know what? No stock is a sure bet, right, Christine? You know, it's all a big gamble. When look at how Facebook traded on Friday, yes, it ended flat.

But you have to remember it was hyped up quite, quite a bit. So the expectations were really, really high. With a lot of these tech IPOs lately that's how it's been. It's been a lot of hype.

Especially, you know, when you see what happened on Friday. You know, the investors showed their displeasure in the fact that the Facebook shares did not get that pop that they wanted.

All these social media companies including Zynga, Yelp, Pandora, Groupon, LinkedIn, all ending lower on the day. But you know what? One analyst says wait a minute. Everybody take a breath. This is one day.

The trend is still positive for social media because you know what? People are using social media. Advertisers are advertising on social media. Advertisers are spending money on social media.

So the trend in the long-term is positive. This is one day. The suggestion from the analyst, give this sometime and let's see what happens.

Look on the bright side, Zynga. When Zynga went public in December 2011, its IPO price was $10. Guess where it closed, it closed 5 percent lower $9.50. So at least look on the bright side, Facebook didn't end lower than its IPO price.

ROMANS: Right. And remember, too, to be fair. There are a bunch of people in Menlo Park, California who are now millionaires and multimillionaires. So people did make money on Facebook and people that had been an investor for a long time. Thanks, Alison.

VELSHI: You know, I finally tweeted something out today for all the Facebook haters out there. This isn't a public vaccination. If you didn't want to buy Facebook stock, you didn't have to buy Facebook stock.

Felicia Taylor is on the floor of the New York Stock Exchange. Felicia, let's talk about something for a second. We don't spend a lot of time on it, but there was definitely something up with the trading, as Alison said at Nasdaq. For us old-timer's, that didn't used to happen.

FELICIA TAYLOR, CNN BUSINESS CORRESPONDENT: No question about it. Thank you for including me in that group of old-timer's. That was really sweet of you, Ali.

But what was fascinating was to be here on the floor of the stock exchange and to watch what was going on Friday and to see the traders literally huddled around their terminals watching that penny point move, whether it's 38.01 up to possibly 38.20.

You could see that the action was in there. As we've talked about, you know, underwriters come in to make sure that stock didn't go below $38 a share. That was their job. That was what they were supposed to do and they did it effectively.

But day traders were coming into the stock and hammering, pushing it, and there was a lot of short covering at the end of the day, which is, you know, it's interesting to see so much activity in Facebook stock in its first day.

Get a load of this, 567 million shares traded on this first day. Only 421 were offered. Compare that to 1.1 billion shares that traded on the entire New York Stock Exchange. It was a 20 percent part of what happened at the Nasdaq. That traded some 2.6 billion shares today.

VELSHI: All right, so Apple on a given day will trade 25 million shares, Microsoft 50 million. This is 10 times what Microsoft would do in a day.

TAYLOR: Exactly huge.

VELSHI: -- which means it turned over. So here's Felicia what I think it means. All those early stage investors or many of them -- and we're going to talk to one in a few minutes.

A lot of them who are venture capitalists who want to put their money to a company for a few years and take money out of it were bailing out.

They were getting a good price for their stock. It's a price they thought they would get and a whole bunch of new investors came in.

TAYLOR: Absolutely, there's no question about it. I mean, if you were one of those guys who got in on the IPO price that was fine. You did absolutely fine because it went up to $42, $45 a share.

But it's moving forward and taking the story forward. A lot of traders on the floor here told me that they expected the stock is actually going to dip below $38 per share. Is this something individual investors really want to get in on?

I would venture to say that right now that's too uncertain to say. You don't know where the stock is actually going to value out because we don't know where the earnings are. They may be able to make money, but we don't know where that growth is coming from yet.

VELSHI: That said if you were a retail investor, you could get into a big stock at the IPO price, something we said wasn't likely to happen. Felicia, good, thanks very much. Stay there.

Let's bring in some of those people we talk about who trade stocks for a living. Ned Riley, Craig Shapiro, Matt McCall, I want to ask you the same question.

Ned, I want to start with you. We know this thing came in lower than most people thought it was going to come in. Can I or I being my viewer, the retail investor make money by buying Facebook at this price, basically the IPO price?

NED RILEY, CHAIRMAN, RILEY ASSET MANAGEMENT: Well, I said it last week and I'll say it again. This is not the kind of stock that a retail investor should be in right now. There are too many questions about the business platform. The price its selling at is a price earnings ratio that's just astronomic.

And this management team has done a great job of getting the audience. Now the problem is shifting from desktop, laptop to mobile devices. As we've been talking about mobile devices don't carry a lot of ads right at the moment.

So these are critical questions to the company. Not only this company, but others in that social space as well as some of the bigger more developed companies like Google have to answer and how do I figure out how I'm going to capitalize on that mobile device later on down the road.

VELSHI: Craig Shapiro is an early stage investor. He's the CEO and president of the Collaborative Fund. He's heard your argument before because he's been in on it. Craig, I know you disagree with Ned.

Both of you thought this thing would end up higher than it was today. So if you thought it was going to end up higher and you thought it was a good investment last week, I got to think this is a screaming good buy at 38 bucks.

CRAIG SHAPIRO, CEO AND PRESIDENT, COLLABORATIVE FUND: You know, I do. I couldn't disagree more with Ned respectfully. But I think I'm actually happy to see the price where it's at. I think it's a fairly traded stock.

I think it's an opportunity for a retail investor to get in. If it's a retail investor looking to make a quick dollar, I think it's a problem. But if you're in, you want to be in a company for the long haul, I still think Facebook is a great, great company with a lot of potential.

VELSHI: Matt McCall, you also didn't think -- you also thought it would be higher than it is right now. Who are you siding with Ned or Craig?

MATT MCCALL, PRESIDENT, PENN FINANCIAL GROUP: I'm going to go down the middle here, but I'm going to lean towards Ned. I said a few weeks ago I don't like the stock. I wouldn't buy it in the first trading day.

This is one of those stocks when a girl that did my makeup text me and asked if she should buy it, the guy that fixed my scooter asked if he should buy it, it's a cocktail stock.

It doesn't make you money though. It's great to talk about it. You look at evaluation then mention PE ratio. Their PE ratio is over 100.

If I want to buy tech stock, look at Apple to Google, their PE ratios below 20. There are values out there for good stocks, Facebook isn't one of them right here.

VELSHI: It is a high PE, but we're going to talk about that. How you choose. Where you should get into a stock? You boys stay there a little bit. We'll mix it up a little more with you after the break.

Should you invest in Facebook's future? That's the question I'm posing to one of the tech world elite entrepreneur who happens to be a former employee at Facebook. That's next on YOUR MONEY.


VELSHI: If you're planning to buy shares of Facebook, you should know what Facebook is selling, it's you and your data. More than 900 million people use Facebook. That's around three times the total population of the United States.

Facebook's user base has quadrupled four times over the last three years. Facebook has 100 billion friendships. Users leave 2 billion likes and comments each day, 2.7 billion actually.

Facebook is also the world's largest photo sharing site. Users upload 250 million photos every day. All that data allows Facebook to offer highly targeted advertising.

In 2009, Facebook made 98 percent of its money from ad sales. That dropped to 85 percent last year, $3.7 billion. Sounds like a lot, but Facebook makes less than $5 per user each year. Google makes more than four times that amount.

So Facebook needs to convince investors that it can turn users into money. Dave Morin was an early member of the Facebook team. He is the co-inventor of the Facebook platform and Facebook connect. Before that he worked as a marketing manager at Apple. Dave, welcome. Facebook needs to continue adding new users or get more money out of each user.

We know the company plans to tap into the mobile ad market. But how does post IPO Facebook grow well, not alienate users. They have to poke into them a little bit more. Not to use a Facebook term, but get into their business even more.

DAVE MORIN, CO-FOUNDER AND CEO, PATH: Well, I think the important trend to take a look at right now is the shift to mobile devices and to the mobile internet.

You know, the desktop internet was really only about 1.5 billion personal computers. The data says that there's about 5.5 billion mobile subscribers in the world today.

And so, you know, in terms of growth, Facebook really has to start looking at the shift towards mobile and looking towards users on the mobile side instead of just focusing on the desktop. I think they are starting to do that that's really where the growth is going to come from.

VELSHI: All right, I'm an avowed Facebook admirer. I'm not that much of a user, but I love the concept. I love what it could represent.

But what I get a lot from Twitter and criticism at the tech world is full of companies that failed in the internet space. Right now, Facebook has the edge, so did AOL once and MySpace.

AOL and MySpace we don't talk about all that much. What does Facebook do to make sure that not only it's in the right space, which it probably is as you described, but that it dominates that space forever more?

MORIN: Well, I think that, you know, Facebook's focus on the user first and creating a really core utility for sharing information and communicating, that's been a big part of Facebook's success so far, how they won against competitors in the past.

Going forward, you know, the major area where Facebook has to focus is on the platform. Continuing to provide tools for third party businesses or marketers, even businesses like us at Path to, you know, build out new and unique and interesting businesses and apps whether that be mobile or continuing on the web.

You know, Facebook really has to continue to empower the platforms so that the network effect of businesses that depend on Facebook is just as strong as the one around users.

ROMANS: Dave, it's Christine Romans. I want to ask you about cult of Mark Zuckerberg and what happens there in Menlo Park. He's one of the world's wealthiest people now. You wouldn't know this if you met him on the street.

The company issue hoodie and the like. A new article in "New York Times" says that Zuckerberg expects that same low key attitude from all of his employees.

It says, quote, "Peer pressure dictates the consumption be kept on the down low. It is understood Facebook employees and their friends and Mr. Zuckerberg would find it uncool for one of his underlings to drive a Lamborghini to the office."

Dealers of luxury goods shouldn't expect a wave of orders, I guess, from conspicuous consumption in Silicon Valley from Facebook's newly rich. Is it true there's this culture around this about not flaunting this newfound wealth?

MORIN: Well, I would say that's not just a Facebook thing, but a Silicon Valley thing. You knw, Silicon Valley has always been a place where though there's a lot of wealth created, people try to sort of behave in a more humble, slightly more --

ROMANS: Why do you think? Why do you think?

MORIN: Well, I think it's not entertainment. You know, it's technology.

ROMANS: It's not Wall Street.

VELSHI: We'll be selling Lamborghini and condominiums.

ROMANS: The car dealers in the tri-state area go nuts when something good happens around here. It's different. You're saying it's different. You're not going to see a bunch of blinged out watches.

MORIN: Well, I think one of the key differences because the culture of Silicon Valley is so rooted in entrepreneurship, what you see people do with their wealth is instead beginning to reinvest it into the ecosystem and to help drive innovation with, you know, new entrepreneurs.

And I think that the second thing that you actually see quite a lot of is philanthropy. One of the things that's quite encouraging to me about the early Facebook crew is that because the Facebook mission because so socially focused.

There's a lot of folks in the early Facebook crew that really starting to approach the philanthropic space in a really unique almost Facebook-like way. People really want to help make it better and help make the world a philanthropic giving as efficient as we did with the social fabric.

ROMANS: It's possible Mark Zuckerberg could be one of the great philanthropists of our time. I mean, he's already started with Newark and you know, big donation in Newark and Cory Booker what they are trying to do there for their schools.

But do you think that Mark Zuckerberg is going to be the ultimate leader of this company? He controls most of it still. Is he the right leader for a Facebook that's now public and going to keep growing or try to keep growing? MORIN: I'll answer both questions. You know, I think that Mark could quite possibly end up one of the great philanthropic leaders of all time. His co-founder Dustin Moskovitz has already, you know, pledged to give away most of his wealth, not when he dies, but before he dies very aggressively.

He just started Good Ventures, which is a, you know, a big new philanthropic foundation. So I think you're seeing the leadership not just say that, but start to take actions in that direction. As far as Mark being the long-term leader, I think the answer to that question is yes, you know.

I think Mark has shown a great tenacity in sort of how he's led the company. He's proven that he knows when to innovate and how to innovate and how to push the company forward at the exact right times.

He really has inspired everyone that's worked with him, including us. We take a lot of his lessons around staying focused on building for the long-term and sort of striving for building a team driven by excellence. We take that into account at Path every single day.

VELSHI: Dave, good to see you. Thank you for joining us. Appreciate you sharing your wisdom from the inside with us. Dave Morin is a co- founder and CEO of Path, former Facebook employee, one of the developers there that give you the experience that you've got.

All right, when we come back, there's really only one reason to buy the stock of a public company. You now have a chance to buy Facebook at pretty much the price that all the big guys had a chance to buy that. Should you or shouldn't you? We'll talk about it when we come back on YOUR MONEY.


VELSHI: There's been a lot of interest in Facebook's IPO from big banks to newbie investors. I've heard from a lot of newbie investors. IPOs, she'll tell you, a risky business. That's not really a point that I tend to make as much as --

I want to welcome back our panel, Ned Riley, chairman of Riley Asset Management, Craig Shapiro, investor with the Collaborative Fund and an early Facebook investor. I'm thinking maybe, Craig, you're still a Facebook investor or did you make like a bandit and get out?

SHAPIRO: No, I'm still in there, 100 percent.

VELSHI: You're still in. Matt McCall is the president of Penn Financial Group.

Here's the interesting thing. Craig is all in about Facebook. He thinks it's a great idea. Matt and Ned are not guys that shy away from the market. They are lukewarm on this whole thing.

Ned, let me start with you. OK, I'm going to do what I said to Felicia. You and me and Christine were old-timer's in this thing. We didn't know about the world of investment through the internet. ROMANS: Buggy whips.

VELSHI: Wheat and things like this. We've got to get with the future, Ned. Are you grumpy about the internet or is there something about Facebook you don't like?

RILEY: Well, I'll look at my slide rule right now and see if I can calculate a future price. That's what I started with. Maybe we are grumpy. I don't know. Maybe you see all these great wealthy people out there.

But it isn't that. I really believe Facebook is probably going to be a very successful company. I'm just not convinced that this price, this time that I'd want to participate in what I call a rifle shot approach to own Facebook or four or five other social media companies.

Because I was around in the 1990s when everybody thought technology was the thing of the future.

VELSHI: It is, Ned, it is. The internet is the most powerful tool in the world.

RILEY: I don't disagree, but the stock prices of some of those companies back then, people back to normal. These companies are still viable, good contributors today.

I think what we've got to look at is Facebook in the context of how you participate in the stock. Look at those mutual funds that may have a heavy position.

Look at those exchange traded funds. I have been advocating the 3 Qs, which is the top 100 stocks in the Nasdaq index for the last three years.

Now I ended up with 17 percent in Apple stock. I said that wasn't genius, that was purely accidental, but Apple was a success. If Facebook is going to be that kind of success then people are going to be --

VELSHI: That's a very good point.

RILEY: But I suggest diversification.

VELSHI: If you can buy ETC, which is like a stock, it's the top 100 stocks in the Nasdaq, and Facebook will be in it. Matt McCall, you suggested the internet social media ETF, SOCL I think is the ticker symbol and they get a piece of all these social media companies. I'll come back to you in a second, Matt.

This one is for Craig. Craig, we've had 31 internet IPOs since the beginning of 2011. Not the '90s that Ned was talking about, since 2011. Twenty two of those are trading below their closing price on the day they went public.

Sixteen are trading below the offer price. The offer price would have been $38 in the case of Facebook. So tell me as a guy who is an early stage investor, a venture capitalist, Silicon Valley, the odds are against these tech IPOs.

SHAPIRO: You know, it's unfair I think to lump Facebook in with the rest of that group. I think it's its own unique beast. I mean, there's no other company really in the world. Forget about the other IPOs since 2011 that touches a billion people.

People on average spend seven hours a month on Facebook. They have billions of dollars in cash in the bank. So it's not a typical IPO. Certainly a very, very different profile from the companies you're talking about.

VELSHI: All right, Christine, I think it's fair to say. I've seen a lot of hype around there about us hyping -- the media hyping Facebook stock.

If anybody watched you and me in the last few weeks, they will know full well that Christine has been the brakes and I've been the accelerator largely just to make opposite points. I don't think we're that far apart.

ROMANS: In part because of Matt McCall. Matt McCall was really like buttressing what I had been thinking, Matt, which was -- if you're an individual investor, give it a month and let it settle out. It's a price discovery mechanism and it's not a game for the weak at heart. You're absolutely right to suggest --

VELSHI: You don't have to rush in on day one, Matt.

MCCALL: That's what blows my mind. The way it seems it's been going on Friday is the fact that, if you don't get into Facebook it's over. I mean, you have years ahead of you to get into Facebook, tomorrow, Monday, Tuesday, sit back and relax.

One of the biggest things I tell my clients, anybody investing, patience is a virtue when it comes to investing. Let the stock pull back. I honestly think it can come down to the low 30s, high 20s.

At that time, yes, I might be a buyer of Facebook. But I want to make one point, Craig talked about Facebook is different. It's different. You can't compare to other IPOs.

If I had a dollar for every time somebody told me that, my goodness, every IPO is different. And how about this statistics, this 2008, we've had 72 internet related IPOs hit the market over $50 million.

Twenty of them priced above their original rate just like Facebook, the average gain in the first day of those stocks, 20 stocks, 59 percent, Facebook zero. So that shows you that, you know Facebook maybe it's not like other IPO.

VELSHI: Poor Craig, man, he's like a pariah for being a venture capitalist and early stage investor in Facebook. I love the conversation. You guys are great. You represent all the viewers out there.

I think America is smarter for having this process, understanding the IPO process. I think it's great, Craig, Ned, Matt, stay exactly where you are.

Up next, you all know Mark Zuckerberg and if you don't, there's nothing I can do for you. Just turn the channel off. But what about the woman behind Facebook's success? Next on YOUR MONEY.


ROMANS: Mark Zuckerberg is synonymous with Facebook in the movie "The Social Network" made him more famous. But many argue it's someone else who is really the driver of the company's financial success. Poppy Harlow reports.


POPPY HARLOW, CNNMONEY.COM CORRESPONDENT (voice-over): You know the story. Mark Zuckerberg started Facebook in his Harvard dorm room. But do you know Cheryl Sandberg? She's his right-hand woman. People say Facebook wouldn't be where it is today without her.

UNIDENTIFIED FEMALE: I was a really serious geek in high school. It works out.

HARLOW: She is Sheryl Sandberg, Facebook's chief operating officer, number two to founder Mark Zuckerberg. She joined Facebook in 2008 taking it from less than 150 million users to more than 900 million today.

DAVID KIRKPATRICK, AUTHOR, "THE FACEBOOK EFFECT": If Sheryl hadn't been there, I don't think Facebook would be going public today so successfully. She came in and basically created the business. She had a whole month's worth of meetings trying to figure out what business Facebook was even in.

HARLOW: A Harvard grad who worked as Larry Summer's chief of staff in the U.S. Treasury Department, she landed next at Google where she built the company's ad business.

TIM ARMSTRONG, AOL CEO: I think Sheryl's main contribution was actually figuring out how to go from zero customers and a new channel to figure out how we were going to get a billion dollars and millions of customers. She built that from scratch.

HARLOW: She's so important to Facebook, the company's public filing documents say losing her could harm the company. I interviewed her the day it become profitable.

UNIDENTIFIED FEMALE: The big announcement today is that we hit 300 million active users. We're cash flow positive.

HARLWO: As a female that reached close to the top of the corporate ladder, she challenged young women to do the same during the 2011 commencement speech at Barnard.

UNIDENTIFIED FEMALE: You are the promise for a more equal world. A world where men run half our homes and women ran half of our institutions would be just a much better world. HARLOW: And for this mother of two, balance is key.

UNIDENTIFIED FEMALE: I walk out of this office every day at 5:30. So I'm here for dinner with my kids at 6:00.

HARLOW (on camera): Has she changed the culture at Facebook, do you think?

CLARA SHIH, CEO, HEARSAY SOCIAL, SANDBERG FRIEND: Absolutely. Her influence has gone far beyond just Facebook. I think she's established a new way of doing things, a new culture to aspire to across all technology companies.

HARLOW: She's changed Silicon Valley?

SHIH: Absolutely. And if you look at Oracle or you look at Apple, a lot of these companies have a single leader, usually it's always been a guy who has a singular vision. We're seeing a shift from ego driven to leadership driven.

HARLOW (voice-over): People who know her say Washington should be in the cards.

ARMSTRONG: I told her she should run for president.

KIRKPATRICK: I think Sheryl will end up in Washington. I honestly think she could someday be president that's not a joke.

UNIDENTIFIED FEMALE: Do you have political aspirations?

UNIDENTIFIED FEMALE: I have aspirations to do something that matters. Right now, I don't think there's much more I could do than Facebook.


HARLOW: A big challenge for Sandberg, she's going to have to figure out how to tackle all the users that are going mobile with Facebook. That is a big challenge. She's going to have to figure that out.

Ultimately, Mark Zuckerberg controls the company with more than half the shares. If anyone can do this analysts tell me it's Sheryl Sandberg.

She's the one who ostensibly built Google's ad business into what it is today. She's proven to do that thus far at Facebook. You can't overstate her importance in this IPO.

ROMANS: You know, Poppy, it's so interesting. She could probably have any job she wanted in Silicon Valley. She could probably be CEO of any company she wanted in Silicon Valley. Do we expect she'll stay at Facebook in the long-term? I know some of her compensation is tied to staying there a few more years.

HARLOW: It is. She's got plenty of money. I mean, I doubt it's because of money for her. It's interesting. I was talking to David Kirkpatrick who you saw in the piece. The author of the "Facebook Effect."

He knows this company inside out. He knows Mark Zuckerberg and Sheryl Sandberg very well. He told me he doesn't believe he would take it public without knowing Sheryl Sandberg would be by his side for not only a year or two years, but for a good amount of a period of time.

The same point, it's interesting their relationship worked so well as number one and two of the company. He said because she doesn't aspire to be CEO.

She's fine being Mark's deputy because she doesn't think there's anything more meaningful she could do when you heard say that than be at Facebook. That's key, having someone in that role that is not always looking aspiring to take the CEO spot.

ROMANS: All right, fascinating person. Poppy Harlow, thanks.


ROMANS: Jessi Hempel wrote a Fortune cover story on Facebook. Now, Jessie, you've covered Facebook for seven years.


ROMANS: Written about it extensively, which is a lifetime in Facebook years?

HEMPEL: I know, almost multiple.

ROMANS: People buying Facebook stocks are almost betting on Mark Zuckerberg, is that a safe bet?

HEMPEL: Today we saw people aren't sure it's a safe bet. I don't know about you, but I was surprised what the stock did.

ROMANS: A lot of people thought it was a launch, how big would the launch be, but it was just in the end holding on to $38 a share.

HEMPEL: Well, you know, I think part of that is in the last week there's been smart coverage of Facebook and people have been examining the business itself.

When you look at the business it's just not a sure bet yet will that's not to say there's anything wrong with it. I think in the last week we heard for the first time actually they haven't quote got it figured out. This is not your next Google. It's a promising start.

ROMANS: You mentioned Google. In 2004, Google went public. A lot of people said Google went public with room to grow. Facebook goes public priced for perfection and sized for perfection.

HEMPEL: It would seem that, right? Facebook, here is a company, it is growing, but it is growing faster than it is bringing in revenue, right?

It's growing in markets where it doesn't make as much money. Users picking up are in Brazil, India, places unlike the U.S. where it doesn't cost as much to advertise.

Say what you will, it's a more mature business at this point. So we know a lot more what we're getting when we buy it.

ROMANS: I know. We know that each quarter you bring up the users, how much per user $2.80 off each north American user. You look outside North America, Europe, Asia, the average is lower $0.37. Do they have a plan to increase that revenue for the rest of the world?

HEMPEL: Well, they have a lot of plans we haven't heard about yet, right. So what we're betting on when we bet on Facebook is that they have a strong management team.

And they have got the talent they they'd to unravel this pickle of a problem. We do know they launched an advertising strategy in February. It's just too early to tell if it will work well.

ROMANS: You talk about management we just saw an amazing piece about Sheryl Sandberg. You know, the combination of Zuckerberg and Sandberg is pretty powerful.

HEMPEL: It is a powerful combination. Sandberg is somebody who you want on your side. Quite simply she has more experience than just anybody else at how to make money off the web. She's done it once before with Google.

ROMANS: All right, it's so nice to see you. Jessi Hempel, "Fortune" magazine. Great piece. Thank you.

HEMPEL: Thank you.

ROMANS: Up next, our traders are here for you. The investment experts with some free advice.


VELSHI: We took a little time out here so that the boys could stop ganging up on Craig. Ned Riley of Riley Asset Management, Matt McCall, Matt's on the right, Ned's on the left.

Craig Shapiro, just like a target, right in the middle, he is a venture capitalist. This is what guys like Craig do. They're looking for the next Facebook. They put money into companies.

I don't know if that rule of thumb still applies, Craig, that -- a third of the companies you'll invest in will blow the lights out, do really well, a third will do nothing, and a third you lose money on. I don't know if that's the right ratio, but that's what you do, right?

SHAPIRO: Yes, that's right, Ali. In fact, just using Facebook as an example, three venture funds have returned their entire fund just through Facebook alone.

VELSHI: So my concern is that you guys are early stage. Now Facebook has entered a stage of maturity. Generally speaking maturity means growth is lower and suckers like us invest in it and guys like you move onto the next thing.

SHAPIRO: Here is where I take issue I think with Ned and Matt a bit. People laughed at Peter Theo when he initially invested. People laughed at Yahoo! when they offered a billion dollars. People laughed at Microsoft when they invested a $15 billion valuation.

People laughed at Goldman Sachs when they invested in a $50 billion valuation. They are not laughing today. So when you hear Ned and Matt talk about, well, wait a month or invest through 3Qs, it's more technical.

The underlying values haven't changed. You've got an incredibly focused founder and CEO with a talented team building a potent product that reaches a billion people.

ROMANS: If you're Peter Theil, think about it. Christine here, half a million dollars to help this company get through its first summer, I think. You have to really take big risks and the reward is big. That's the whole point of the thing, right?

SHAPIRO: Absolutely. It comes down to risk tolerance. For the average investor if you're concerned about it going through a mutual fund or some exchange could work. If you believe in the company or potential, doesn't matter whether you invest today or next week or next month.

VELSHI: So let me ask you this, Ned Riley, for two seconds let's pretend Facebook isn't the only story out there. God forbid I'll have to talk about JPMorgan or Greece, it's going to upset me.

Where if you're an investor who wants to feel the juice of the market, the things that are working, the things that are growing, you don't want to have a depressed discussion about how nothing is working.

Half of the world is into recession and the other half is slowing down. Where do you go? What do you do? What would you recommend? You're telling me not to get into Facebook, where would I go?

ROMANS: Ned, this was the worst week in stocks for 2012. The big story is Facebook, but this is a bad day and bad week for investors.

RILEY: That's a great point, Christine, because with all of this about Facebook and everything else, we've forgotten the fact that Google was down $22 on Friday.

The tech stocks got murdered. You wonder if Facebook was the catalyst or the sentiment of the market. I like the market today. I think it's got a lot of potential.

The answer to your question is I still like the three Qs because they have companies rapidly growing. The price earnings ratio of these companies is reasonable whether Apple or Google or several other tech companies out there.

Now, Facebook has a high multiple but you can grow into it. Remember companies like Google were 60, 80 times earnings five, seven years ago. I'm not trying to pooh-pooh Facebook.

As a matter of fact, Craig, I congratulate you. I think that's terrific. I don't have any of it. If you want to give me 25 percent of yours at a buck a share, I'll buy it from you. There is a sector going, technology. That is the area where people will make their money.

VELSHI: All right, Ned has redeemed himself from acting like a dinosaur, like we don't know technology. We've embraced technology.

OK, hold on. When we come back, we've learned a lot about IPOs, listings in public companies and we talked a lot about technology. How do you decide after the Facebook hype is over when to get in on a stock? I'll talk to the panel about that when we get back.


VELSHI: OK, Ned Riley, chairman of Riley Asset Management, Craig Shapiro, investor with a Collaborative Fund and early Facebook investor, Matt McCall, president of Penn Financial Group.

Christine and I were talking in the commercial. The issue here is that you guys represent different types of risk tolerance. Guess what? So do the two of us and all of our viewers.

In the end, I think we all agree. All five of us agree, you will not make money sitting the market out. So the question is, how you make decisions to get into the market?

Matt McCall, if you are the average investor who gets -- got to be in the market but don't know too much about it, how do you decide how much you pay for a stock?

MCCALL: It's a very, very tough question. It comes down to valuation, the amount of money that that stock makes. That's called earnings, earnings per share.

You can relate that to the price of the stock. You get the price to earnings ratio. I mentioned earlier in the show, that we have Facebook trading about 100 price earnings ratio. We look at Apple and Google, both below 20, actually Apple below 15.

VELSHI: That's the apples to apples comparison, no pun intended. How you determine one is more expensive than the other. Invariably something will be more expensive than something else.

I can buy a sweater for $40 at Macy's that I might pay $400 at Prada, doesn't mean that the Prada one's overpriced, it means it's offering something different. Put it in that prospect. Is Facebook the Prada to Google's Macy's?

MCCALL: Right. That's actually a great analogy. What you also have to look at price earnings means a lot. Company has a 15 PER ratio and company B has 15 PE ratio, but one is growing at 80 percent and one growing at 10 percent. You better believe I'm buying the one at 80 percent. So you have to look at growth at the same time. We're in a pullback right now too. If I had a dime, let Apple pull back to $5.50.

Now down to $5.30 in Apple, you're afraid to buy it. You like that company, believe in it, buy into weakness. It's very tough to do psychologically, but that's how you make money long term.

ROMANS: Guys, I want to first give this one to Ned. You know, I think this whole story about Facebook and people learning about what Facebook does is a real great moment for investors.

Who may not be paying attention to their investments or may not even be investments. Is there a bigger lesson about the public interest and scrutiny in Facebook and what that tells us about how people should be invested?

RILEY: Well, it is. First of all, you should know what you are buying and people do that with the Facebook, because they've used it for so long. But there's another part of it. How much money do they actually make off of what they've developed as huge audience?

They've been very successful in what they've done, but you've got to make money and eventually pay out of dividends and good someone return for that investment you make. The problem we've got, it's a retail investor, or if it's institutional investors.

There's such a thing calmed emotion in subjectivity that normally supersedes objectivity, and I'm saying in a simple way, people are not very objective with their money. They get emotional, all tied up in and it usually make big mistakes.

That includes a lot of sophisticated portfolio managers. I manage a lot of them. Sell out at bottoms and buy at tops. I try to tell people, take the emotion out, try to be objective. Buy when everything in the world looks like it's coming to end.

And sell when everybody's happy, a party going upon that's when you run for the hills. A lot of people don't adhere to that philosophy. When they start to lose, it's extremely painful.

VELSHI: Well, if there's anything I've learned from you guys is that different philosophies really do prevail and I think a lot of our viewers will identify with each one of you.

Ned Riley, good to see you. Ned Riley is the chairman of Riley Asset Management. Craig Shapiro in the middle is the CEO and president of the Collaborative Fund and Matt McCall is the president of Penn Financial Group.

ROMANS: All right, guys, Mark Zuckerberg angered some investors when he showed up for his meeting in New York, remember this wearing a trademark hoodie, but there's a secret hiding underneath that great stereo. We'll explain the secret next on YOUR MONEY.

(COMMERCIAL BREAK) VELSHI: We told you about price to earnings ratios. We just talked about that and how many users Facebook has. All the information you need if you're a potential investor.

But there are a few things about the social network that you probably didn't actually know. Ever wonder why the Facebook interface is blue? Turns out Mark Zuckerberg is red-green color blind.

He told "The New Yorker's" Jose Antonio Vargas that blue is the richest color for me. I can see all of blue. Mark Zuckerberg cannot see green, but that doesn't mean he's turned down a lot of green. Four months after the launch in 2004, Zuckerberg then 20 years old turned down a $10 million offer for the company. That's according to the book "The Facebook Effect" by David Kirkpatrick.

ROMANS: Now maybe if Zuckerberg took some of that money, he could buy some new clothes, right? But, Ali, did you know that Mark's famous hoodie hides this secret.


UNIDENTIFIED MALE: It's a thick hoodie. It's a company hoodie. We print our mission on the inside.

UNIDENTIFIED FEMALE: What? My God, the inside of the hoodie, everybody, take a look. What is it? Making the --

UNIDENTIFIED MALE: Making the world more connected.


ROMANS: That's Carrie Swisser from all things digital. There he was taking off the hoodie. What's inside? It turns out it is the company motto inside and Facebook issued. Anybody on Facebook can --

VELSHI: Close to his heart.

ROMANS: Some people are disappointed. Some of the old school, generation x and above were disappointed when he went down the road show and was wearing a hoodie.

VELSHI: I did think I might see him in a suit. I don't know what it would look like. The bottom line is you know what I think about this. This is not an invest matter.

This is the fact that I do think they've been responsible for leading a paradigm shift in the internet. If you believe you want your life experience curated by the community you creat, the friends you choose, people you follow and subscribe what he read, like and recommend, Facebook could be the future.

ROMANS: Yes, it certainly the future for how you use the internet. Is it the future for making money off the internet? That's the existential question. I will say as well a tough week, the worst week, 2012, for stocks.

VELSHI: Worst week for stocks.

ROMANS: So what came first, Facebook, its IPO or a bad market?

VELSHI: Thanks for joining the very vibrant conversation this week on YOUR MONEY. We're here every Saturday at 1:00 p.m. Eastern, Sunday at 3:00 p.m. Make sure to check Christine Romans on "YOUR BOTTOM LINE" every Saturday morning. Stay connected to us 24/7 on Twitter. I'm @alivelshi. She's @christineromans. The show handle is @cnnyourmoney. Have a great weekend.