Belle of Liberty

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Thursday, May 24, 2012

The Facebook Flop

If I’d been an investor looking at the IPO prospectus of Facebook, knowing that General Motors had pulled its advertising, claiming that the advertising didn’t work, I would have been suspicious of both Facebook and General Motors’ claim.

Although on the surface, Facebook seems pretty useless, there’s no denying its popularity.  That General Motors was advertising on Facebook – that GM, was in fact, Facebook’s biggest advertiser – is the real red flag, not whether its advertising was failing.  There, I’d want to hear from other companies.  General Motors itself was a failing company and is now, basically, a government entity.  I’d want to know why Obama – in the guise of General Motors – wants Facebook to fail?

Many Tea Parties and affiliated groups, including AgEnders, share their information over Facebook.  Facebook is the fastest, easiest way to share information the Administration doesn’t want you to know.  Pundits fear the power of Facebook to infringe upon the privacy of individual citizens, but it poses just as much of a danger to a totalitarian government like the Obama Administration.

Obama has to do something about all that information-sharing, and the best way to do so is to scare off other advertisers, using General Motors as the bait.  If such a large company would pull is advertising, it can’t be a good omen for Facebook’s future as an investment.

The Facebook Flop would be considered a “Black Swan Event,” a financial aberration that takes everyone by surprise but in hindsight, can be explained.  The Financial Crisis of 2008 was another.  Why anyone was surprised by that event is the real mystery.  9/11 was a non-financial Black Swan Event, of which we were repeatedly warned through Al-Qaeda’s press releases, but by which we were still horribly shocked (understandably).

The black swan theory is a metaphor that encapsulates the concept that an event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight.

The theory was developed by Nassim Nicholas Taleb, a Lebanese-American essayist, to explain:

  1. The disproportionate role of high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.  The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
  2. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs
According to Wikipedia, unlike the earlier philosophical “black swan problem,” the “black swan theory” refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events, considered extreme “outliers,” collectively play vastly larger roles than regular occurrences.

The term black swan derives from a Latin expression—its oldest known reference comes from the poet Juevenal’s  characterization of something being “rara avis in terris nigroque simillima cygno.”  In English, “a rare bird in the lands, very much like a black swan.”  When the phrase was coined, the black swan was presumed not to exist. The importance of the simile lies in its analogy to the fragility of any system of thought. A set of conclusions is potentially undone once any of its fundamental postulates is disproved. In this case, the observation of a single black swan would be the undoing of the phrase's underlying logic, as well as any reasoning that followed from that underlying logic.

Juvenal’s phrase was a common expression in 16th century London as a statement of impossibility. The London expression derives from the Old World presumption that all swans must be white because all historical records of swans reported that they had white feathers.  In that context, a black swan was impossible or at least nonexistent. After Dutch explorer Willem de Vlamingh discovered black swans in Western Australia in 1697,  the term metamorphosed to connote that a perceived impossibility might later be disproven.  Taleb notes that in the 19th century John Stuart Mill used the black swan logical fallacy as a new term to identify falsification.

Taleb stated in the New York Times:

“What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, (In statistics, an outlier is an observation that is numerically distant from the rest of the data; an outlying observation, or outlier, is one that appears to deviate markedly from other members of the sample in which it occurs) as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.

Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

“I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.”

The Facebook Flop is very much an investment outlier.  The news that Facebook leaked information before issuing the IPO is more bad news for the social networking site.  The bad news is for the millions of Internet users who depend upon it to share information.  Obama knows he needs to get rid of this Black Swan before any further information leaks out to the general public about his Socialist agenda.

Facebook is no particular danger to the public, although Obama probably would like people to think so.  It is a tremendous threat to the Socialists and it’s expendable.  Obama is about to “Unlike” or defriend the United States of America


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