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Oh Snap! The Roller Coaster Of Investing In Social Media

If you’re like me, you stay in touch with friends the new old-fashioned way — by shooting a text or (gasp) actually talking to someone on the phone. Today, though, we live in a world of ever-changing technology. The continuous stream of new gadgets and apps is constantly changing the way we communicate. Enter Snapchat.

If you’re over the age of, say, 24, you may not be familiar with Snapchat. Launched in 2011, Snapchat created a unique approach to communicating with friends and followers: Photos and videos you post or send appear for a brief amount of time, then disappear forever.

So Snapchat is, in essence, another photo- and video-messaging app. But take a look at the numbers, and you see that it’s also big business — the app has a loyal fan base of nearly 160 million users, mostly teens and young adults.

The appeal? Who knows? I myself am not a Snapchatter. But I am an avid follower of business and investment news. And this is why I’m telling you about Snapchat.

Snap, parent company of Snapchat, recently went public. Its IPO received a very warm welcome into the stock market. Share prices skyrocketed 44 percent on the first day of trading, and another 10 percent on the second. After the close-of-business Thursday, Evan Spiegel (Snap’s CEO and co-founder) and his buddy Bobby Murphy (also a Snap co-founder) were worth about $5.5 billion.

Once again, we’re hearing a Cinderella story of wealth all over the news. Remember the media coverage back in 2012 after the Facebook IPO? This is the same story, different details. But some particulars of Snapchat’s rise to fame and fortune are exceptionally interesting.

Take, for instance, the involvement of Saint Francis High School in Mountain View, Calif. This is a private Catholic school comprised of about 1,600 students. A few years ago, parent Barry Eggers, head of the Saint Francis growth fund and part of the venture capital firm Lightspeed Venture Partners, decided to invest in Snapchat. Eggers’ daughter was a sophomore at Saint Francis at the time. Through his daughter and her friends, Eggers got clued into the popularity of Snapchat.

In 2012, Eggers reached out to Snap and got in touch with Spiegel. Eggers, through Lightspeed, started investing in Snap, and gave $15,000 to the Saint Francis fund to invest also. Here’s where Saint Francis hit the Powerball of investing — that $15,000 investment reached nearly $24 million after the IPO. You heard that right. The number represents growth of 160,000 percent.

While the folks at Saint Francis haven’t gone into specifics on where the cash will go, they do say some of it will be allocated to student scholarships. Tuition at the private school is approximately $17,500 per year. Do the math and you’ll find that Saint Francis can now afford to cover free tuition for over 1,350 students.

These types of stories tap into our greediest fantasies. Turning $15,000 into $24 million? Net growth of 160,000 percent? Black gold or Texas tea? Where do I sign up?

Before you start cashing out to cash in on the latest social media craze, consider this: There’s a graveyard of social media companies out there. Remember Friendster? This platform used to have 75 million users. Now? It’s defunct. What about MySpace? NewsCorp bought the company for a cool $580 million, and later sold it off in 2011 for a nominal $35 million. Even Twitter, while still going strong, is now down over 60 percent from its IPO price. This list goes on.

Here’s the takeaway. We love massive investment wins; they are the real-life examples of getting rich quick. If we’re really getting honest here, these stories perk up the greed in all (and I mean all) of us. But strategizing about striking it mega-rich on the stock market is no different from dreaming of pulling those elusive winning lotto numbers. Just like everything in life, perspective is important here. Facebook and Snapchat are anomalies; they are the once-in-a-lifetime grand slams if you were a very early investor. But for every grand slam, there are hundreds of catastrophic strikeouts.

Just like you don’t count on winning the lottery to finance your retirement, you can’t base your retirement investment strategy on cashing in on another out-of-the-blue IPO explosion. After all, we’re more likely to get struck by lightning than to strike it rich. So play it smart. Use the 15/50 Rule. Keep your focus always on the end game. And remember, above all else, growing wealth takes patience and time.


Read the original AJC article here.

DISCLOSURE

This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.


 

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