Yesterday, as stocks rebounded from Monday's slide, Facebook Inc. (Nasdaq: FB) continued its decline; it dropped 3.92% from open to close Monday and another 4.8% by midday yesterday, all following weekend reports that a political analytics firm named Cambridge Analytica collected personalized data on 50 million users without their consent.
That's not true.
The "without consent" part, that is.
There was no "breach," nor a "hack." Users voluntarily answered surveys created by Cambridge Analytica by participating in an app called "thisisyourdigitallife."
Facebook makes its money by harvesting highly personalized information from users that it then uses to accurately target advertising, content, and other data. That's often sold, manipulated, and shared in ways many customers naively don't think about or even realize.
What got everybody so riled up in this case is the fact that it was apparently used for political purposes – not just to sell you a new toothbrush or tell you about the luxury life somebody else is living at a resort in the Maldives.
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The very notion of online privacy is long gone.
Not to rub it in, but you may as well write down the most intimate details of your life and staple them to a telephone pole if you're on social media. The Russians and Chinese don't have to hack us, nor does an "enemy" state, or even a fleabag terrorist, for that matter.
Anybody can find nearly anything and everything they want to know these days online via the biggest and best organized voluntarily constructed databases in human history, including Facebook.
That said, this episode is a game changer from an investment standpoint. People are apparently just waking up to something you and I have talked about for years – namely, that Silicon Valley's elite has very little accountability to the rest of us, and little to no understanding of the societal impact their "products" have on the world.
Facebook has a number of significant problems right now, which is why I want you to keep it on a very short leash.
I'll tell you how in a second.
First, though, here's what I see.
Facebook Is Getting Its "Equifax Moment"
Facebook execs – including founder Mark Zuckerberg and COO Cheryl Sandberg – are MIA. They have remained aloof and seem hell-bent on not getting involved. But apparently, Zuckerberg and other execs are selling huge amounts of shares, according to CNBC.
I don't think that's a coincidence any more than I thought Equifax execs' selling ahead of the data breach that rocked the company was. Incidentally, neither does the SEC, which just charged former Equifax honcho Jun Ying with selling nearly $1 million in shares after learning about the hack that exposed 143 million Equifax customers' most intimate information… but before the company made the information public.
Zuckerberg failed to respond to Congress last year during inquiries about Russian meddling using Facebook, and instead spent the year learning how to hunt for his own food, speak Mandarin, and take selfies with people around the country.
Call me crazy, but that's hardly what somebody like Jamie Dimon, of JPMorgan Chase & Co. (NYSE: JPM), or Tim Cook, of Apple Inc. (Nasdaq: AAPL), would be doing if either of those companies were under the proverbial microscope.
Facebook adverts are so precise that many users are now concerned cameras and microphones in their cell phones are listening in, processing that information, and serving up advertisements that could not otherwise be relevant.
The company denies that, of course. But I'm not so sure, having had an advertisement recently show up for the Monaco Gran Prix on my tablet in Japanese, following a conversation I had with my wife (who is Japanese), even though we were looking at a site in French together as we discussed it, sitting in America.
Long story short, I think Facebook's stock could be in serious trouble if users decide that Facebook apps become too invasive, or (to paraphrase my sons) "too creepy" to use. From there, it's a slippery slope to advertising revenue and, in turn, earnings.
Here's exactly how to play the situation.
Sell shares if Facebook Inc. (Nasdaq: FB) closes below $170 today, and move on to other great "growth" companies like Alphabet Inc. (Nasdaq: GOOGL), Amazon.com Inc. (Nasdaq: AMZN), and Alibaba Group Holding Ltd. (NYSE: BABA), just to name a few we've got in our recommendations at the moment.
Do not buy the stock on this dip. Zuckerberg's silence is deafening, and the headline risk is too great to accurately value the company's prospects. You may get lucky if there's a quick rebound, but that's a sentiment better suited to Las Vegas than your hard-fought retirement portfolio.
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About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.