Walgreen profit falls; flu season may help this quarter

(Reuters) - Walgreen Co (WAG.N) posted an unexpected decline in quarterly profit on Friday as the largest U.S. drugstore chain worked on winning back former customers and changed how it accounts for its first international acquisition.

The company stands to get a bit of a sales lift in the current quarter as a strong flu season brings shoppers in for flu shots and medications.

Walgreen lost millions of customers due to a contract dispute with pharmacy benefits manager Express Scripts Holding Co (ESRX.O) and is trying to lure them back with offers such as $25 gift cards. It is seeing an increasing pace of Express Scripts patients returning to its stores.

Earnings in the latest quarter were hurt by a decision to report results from Walgreen's stake in Europe's Alliance Boots Holding Ltd ABN.UL on a one-quarter lag rather than a one-month lag. The decision was based on regulatory, audit and business concerns, the company said.

Shares of Walgreen, which has 8,000 U.S. drugstores, fell 3.75 percent to $36.14 in midday trading.

"It was messy," Gabelli & Co research analyst Jeff Jonas said of the quarterly results, noting they included items such as the change in reporting results from Alliance Boots as well as a charge for costs stemming from Hurricane Sandy.

"If you give them credit for everything, it was actually a good quarter," he said.

FLU UP, PROFIT DOWN

The Centers For Disease Control is projecting the worst flu season in 10 years, and Walgreen has seen strong demand for flu shots and other immunizations continue into December, Chief Executive Greg Wasson said.

Through the end of its fiscal first quarter on November 30, Walgreen had given more than 5 million flu shots, up from a year earlier. It has also seen sales of cough and cold medications pick up.

A strong flu season should help the industry in December and likely for the next couple of months, said Jonas.

Walgreen earned $413 million, or 43 cents per share, in the first quarter, down from $554 million, or 63 cents per share, a year earlier.

Earnhings before unusual items fell to 58 cents per share from 71 cents a year earlier, missing analysts' average forecast of 70 cents, according to Thomson Reuters I/B/E/S.

Unusual items in the latest quarter included costs related to acquisitions, an inventory provision, and the effects of Hurricane Sandy.

Results from Alliance Boots cut adjusted earnings per share by 7 cents, rather than adding 3 cents as was expected if results had been reported using a one-month lag.

Walgreen paid $7 billion in cash and stock for a 45 percent stake in the European pharmacy operator in August and has an option to buy the rest of the company in about three years.

Walgreen's first-quarter sales fell 4.6 percent to $17.32 billion, with sales at stores open at least a year, or same-store sales, down 8 percent.

The sales performance was slightly worse than Walgreen reported earlier this month. At that time, it said sales fell 4.5 percent to $17.34 billion and same-store sales declined 7.7 percent.

Since settling its dispute with Express Scripts, Walgreen has stepped up its marketing to bring back Express Scripts patients and also has been promoting a new loyalty card, signing up more than 45 million shoppers in a few months.

Rivals CVS Caremark Corp (CVS.N) and Rite Aid Corp (RAD.N) are trying to hold onto the customers they gained when Walgreen lost its Express Scripts patients.

On December 13, CVS said it still expected to retain at least 60 percent of the Walgreen patrons that switched to its chain, which should boost CVS' fourth-quarter earnings by at least 12.5 cents per share.

On Thursday, Rite Aid said it has retained "the lion's share" of patients it gained during the dispute.

(Reporting by Jessica Wohl in Chicago; Editing by Jeffrey Benkoe and John Wallace)

RIM shares fall at the open after earnings

(Reuters) - Research In Motion Ltd fell in early trading on Friday following the BlackBerry maker's Thursday earnings announcement, when the company outlined plans to change the way it charges for services.

RIM, pushing to revive its fortunes with the launch of its new BlackBerry 10 devices next month, surprised investors when it said it plans to alter its service revenue model, a move that could put the high-margin business under pressure.

Shares fell 16.0 percent to $11.86 in early trading on the Nasdaq. Toronto-listed shares fell 15.8 percent to C$11.74.

(Reporting by Allison Martell; Editing by Gerald E. McCormick)

Investors keep eyes pinned on Greece

By Emily Jane Fox @CNNMoneyInvest

NEW YORK (CNNMoney) -- Investors across the globe wait with bated breath ahead of Sunday's pivotal elections in recession-ravaged Greece.

Victory for the far-left anti-austerity parties could unravel Greece's bailout, raising concern the country could exit the euro currency union. And that could drag down other ailing euro nations and send shock waves through the world's financial markets.

In the United States, stocks managed to end the week with modest gains as investors remained hopeful that Greece's elections would yield a resolution. The Dow (INDU) rose 0.9%, the S&P 500 (SPX) added 1% and the Nasdaq (COMP) picked up 1.3% on Friday.

All three indexes ended higher for a second straight week. The Dow jumped 1.7% and the S&P 500 rose 1.3% for the week, and the Nasdaq gained 0.5%.

Greece will be front and center as world leaders meet in Mexico on Monday for the Group of 20 summit. Analysts are expecting a lot of talk but not a lot of action. In other words, status quo as far as finding a definitive solution for Europe goes.

"It will make a lot of noise, but the most it will do is reiterate that Europe must fix its problem, and that it should come from within the European Union group," said Peter Cardillo, chief market economist at Rockwell Global Capital. "The real emphasis will be at the end of the month when we have an EU summit, where there will likely be some concrete moves."

Some analysts do expect more from the Federal Reserve when policymakers wrap up a two-day meeting Wednesday.

Investors will be listening carefully to Fed Chairman Ben Bernanke during his press conference following the meeting for clues about possible Fed action. There's speculation the central bank may extend Operation Twist, its program to swap short-term bonds for the longer-term Treasuries, or any other stimulus measures.

"There's a good possibility that the Fed will decide to extend Operation Twist, which is somewhat of a Band-Aid," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.

"But economic data hasn't been weak enough to warrant any other significant action," he said.

Washington could send a jolt through the market early in the week, if the Supreme Court hands down a ruling on the Affordable Care Act. That could come as early as Monday.

While the court is focused primarily on the law's individual mandate provision, which requires most Americans to buy health insurance or face financial penalty, the justices could strike down the entire legislation.

Large insurers like UnitedHealth Group (UNH, Fortune 500), WellPoint (WLP, Fortune 500) and Aetna (AETNA) have a lot riding on the fate of the landmark law, which promises to remake the health insurance landscape. Its primary provisions are set to begin in 2014.

And JPMorgan Chase (JPM, Fortune 500) CEO Jamie Dimon will head back to Capitol Hill on Tuesday to testify before the House Financial Services Committee.

Dimon will field questions from lawmakers about the bank's risky financial bets that resulted in more than$2 billion in losses.

On the corporate front, Microsoft (MSFT, Fortune 500) is expected to make a tablet related announcement on Monday at an event in Los Angeles. 

Make-Or-Break Summit Looms As EU Preps For Greek Fallout

 By James Hertling - Jun 17, 2012 2:23 AM GMT+0400

Faced with Greek elections that threaten to result in only more disarray, European leaders are set to turn their attention to safeguarding the other 98 percent of the euro-area economy.

With investors and policy makers clamoring for clarity amidst what Bank of England Governor Mervyn King called a “black cloud” over the world economy, Europe’s chiefs are preparing for their fourth make-or-break summit in a year.

 “They need to signal and make difficult decisions as to what they want the composition and functioning of the euro zone to look like,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., told Bloomberg Television June 15. “The current form doesn’t work. There’s too many flaws.”

Before descending on Brussels June 28, leaders first need to overcome differences on politics and policy. French President Francois Hollande hosted members of Germany’s opposition last week as he pushes plans, which German Chancellor Angela Merkel rejects, to jointly guarantee debt and provide stimulus to counter recession in the 17-nation bloc. Spain’s foreign minister said June 14 that Germany helped trigger the crisis.

“Investors outside Europe lack confidence -- we feel this every day -- in Europe and the euro area,” Merkel said in a June 15 speech in Berlin. “But there’s also a lack of trust among the different actors. That trust must be restored.”

Merkel at G-20

Merkel, whose role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy, gets down to business at the summit of leaders from the Group of 20 nations beginning tomorrow in Los Cabos, Mexico. Global leaders will probably press her to give ground on her austerity-first policy, as they did at the G-8 summit last month.

Merkel then meets in Rome on June 22 with Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy, seeking to find common ground before the EU and euro-area summits at the end of the week.

“More important than the summit is the gathering of the big four,” said El-Erian. “They hold the key.”

The anticipation echoes the expectations that preceded gatherings last July 21, when a second bailout agreement for Greece was outlined; October 26, when bondholders accepted a Greek writedown and the euro rescue fund was beefed up; and Dec. 9, when new budget rules were adopted. None of those steps arrested the crisis.

Greek Gridlock

Today’s Greek elections carry the latest threat of stoking the turmoil, as polls show the anti-bailout Syriza party running neck-and-neck with New Democracy, which says a vote for Syriza risks a Greek euro exit. Polls also suggest no clear majority, bringing the prospect of further political gridlock.

The election is a week after Spain said it would seek a 100 billion-euro rescue for its banks, prompting concern Italy would be next to succumb.

“I don’t think the election results will determine the future of Europe, because I see scope for compromise from both sides,” Martin Blum, co-head of asset management at Ithuba Capital in Vienna, said in an e-mail. “I do think that contagion from Spain to Italy and the quality of the policy response at the EU summit will, however, be important in determining the future of Europe.”

The German chancellor gave a pair of speeches last week laying out her priorities for the Mexico summit that signaled she was staying the course.

‘Quick Solutions’

“Germany will not be persuaded of all those quick solutions such as euro bonds, stability bonds, a European deposit-insurance fund,” Merkel told small-business leaders in Berlin on June 15 to applause.

Since his election on May 6, Hollande has advocated moving toward euro bonds, echoing a position backed by Merkel’s domestic opposition and EU officials in Brussels.

“In the financial circles, few doubt that it makes economic sense to create a deep, liquid and stable market for government bonds with the joint issuance of public debt,” EU Economic and Monetary Affairs Commissioner Olli Rehn said June 15, according to the text of a speech prepared for a Goldman Sachs Group Inc. conference in Brussels that was closed to the press.

Monti has joined Hollande in calling for greater emphasis on policies that promote economic growth. On June 13, Monti said the summit needs to adopt a “credible package of growth measures” to reduce Italy’s borrowing costs.

Italy’s 10-year bonds yield reached 6.342 percent this week, the highest in almost five months, ending the week at 5.926 percent, 449 basis points more than comparable German debt.

Fiscal Union

The euro’s guardians will also debate a blueprint being devised that may chart the way out of the crisis and toward the full union that Merkel envisions. Drawn up by EU President Herman Van Rompuy, European Commission President Jose Barroso, Luxembourg Prime Minister Jean-Claude Juncker and European Central Bank President Mario Draghi, the plan may echo the euro’s 1989 roadmap set out by a panel led by then-European Commission President Jacques Delors.

“The important thing as far as we are concerned today is that this report in a sense spelled out a methodology,” Draghi told reporters June 6. “There was a road with dates, deadlines and conditions to be satisfied. I think that is part of the efforts that our leaders and we, ourselves have to draw up today.”

To contact the reporter on this story: James Hertling in Athens via jhertling@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Whatever Greek Voters Decide, the Euro Looks Likely to Suffer

By NELSON D. SCHWARTZ

Published: June 16, 2012

It will be a late Sunday night for financial pros like Markus Krygier. In New York, London, Tokyo and beyond, nearly everyone is focused on one thing right now: Greece. To be precise, they are focused on a “Grexit” — the possibility of the country’s eventual exit from the euro. For many, the prospect has moved from “if” to “when.”

Related

The Greek elections on Sunday will chart the immediate course, one way or another, and investors like Mr. Krygier, a money manager in London, will be standing by to size up the results. On this side of the Atlantic, BlackBerries and iPhones will be at the ready during Father’s Day barbecues.

Who will prevail in Athens? Will it be Syriza, a coalition of leftist groups that has declared that it will annul the terms of Greece’s bailout? Or the center-right New Democracy, which says it will stick with austerity and keep Greece in the euro zone?

For the euro itself, it may not really matter much, at least in the medium term, says Mr. Krygier, who oversees $20 billion. He is betting that the euro, the currency of 17 nations from the Baltic to the Mediterranean, will eventually weaken, whatever the outcome on Sunday.

Mr. Krygier works for Amundi, a money management venture of two big French banks. And, like many others in the financial world, he says the euro will lose more value against the dollar. Even a euro-friendly election in Athens wouldn’t be enough to stem the pressure as long as nervous investors look to the dollar as a haven, he says. All the bailouts in Europe — two so far for Greece alone — have done little to contain the problems. The financial markets savaged Greece but have now moved on to bigger targets like Spain and Italy.

“The hundred billion bought us two hours of relief, and then interest rates began to go up again and markets began to zoom in on Italy,” Mr. Krygier says, referring to last weekend’s 100 billion euro bailout for Spanish banks. “It has become a systemic issue. Until we see a lasting resolution of those doubts, we feel the euro will remain under pressure.”

On that point, many professional investors and traders agree. The euro has weakened steadily as Europe’s economic crisis has worsened. In May 2011, the euro was trading at about $1.50. Late Friday in New York, it was at $1.26, near a two-year low. But the big money says the euro will weaken even more. Traders have wagered more than $30 billion against it, according to data from the federal Commodity Futures Trading Commission. That figure, which represents so-called short sales, is close to a record high.

“This short position is unprecedented in terms of size,” said Robert Sinche, global head of currency strategy at RBS Securities in Stamford, Conn. “There are a lot of people with some very negative scenarios out there, and they’ve all acted.”

It’s worth remembering that the euro has been weaker than this before — a lot weaker. After euro notes and coins went into circulation on Jan. 1, 2002, the currency promptly sank to about 86 cents. By 2008, however, it had rebounded as high as $1.60.

As forecasts go, Mr. Krygier’s isn’t nearly as bleak as some. He doesn’t expect a wholesale breakup of the euro zone, which has gone from being a far-fetched idea two years ago to a much-talked-about fear today. He says he thinks that Europe will ultimately get its act together and save the euro.

“The question,” he says, “is how long it will take and how much pain there is before we get there.”

If the left-wing parties win in Greece and back away from austerity, prompting a default or a disorderly exit from the euro, “we would expect the euro to drop like a stone,” he says. “The consequences would be dramatic.” The currency could sink to parity with the dollar, he says.

Mr. Krygier has been negative on the euro for more than two years, but his sentiment darkened this spring, as the focus of the fears moved from Greece to bigger countries.

“The big turning point was the transition from a crisis involving Greece and the smaller countries to a crisis that could engulf Italy and Spain,” he says. “It became much more existential for the euro zone itself. We clearly saw at that stage that the vulnerability had increased further.”

Mr. Krygier also expects the euro to decline against the British pound and Scandinavian currencies. And for all the recent doubts about the strength of the economic recovery in the United States, the dollar remains the pre-eminent refuge for foreign investors.

“The U.S. economy is still seen as a safe haven because of the depth of its financial markets, and it’s also sufficiently removed from the epicenter in Europe,” he says.

To be sure, Mr. Krygier says, a victory by those who stand behind austerity could produce a quick snapback in the euro’s value against the dollar. But even if that happened, it probably wouldn’t last, he says. “You might see a short-lived recovery, but in the medium term, the euro has to be weaker.”

And so Mr. Krygier, like just about everyone else in the financial world, will be waiting things out on Sunday. First, he plans to watch the European soccer championships. (Germany, which has prescribed austerity to save the euro, is playing Denmark, which opted out of the common currency and still uses the krone.) Then he will stay up as the first election results come in.

Whatever happens in Athens, doubts about Spain and Italy will only continue to grow, Mr. Krygier predicts. Those nations’ debt loads are large, and both are increasingly seen as unable to make the kind of changes that will persuade investors to keep buying their debt.

THE ultimate answer, Mr. Krygier says, is for European governments, led by his native Germany, to agree “on concrete and credible steps toward greater fiscal and political integration,” including the issuance of broader euro zone debt. That would eventually allow Spain and Italy to borrow what they need with Continentwide backing. In addition, he says, leaders should come up with a euro zonewide bank guarantee to avert full-scale bank runs in shaky countries.

Ultimately, Mr. Krygier says, the market will force policy makers’ hands. “But with 17 parties sitting at the table, the decisions are glacial,” he says. “The markets move in a rapid-fire fashion. The stakes are increasing.”

U.S. Stocks Rise Amid Speculation on Stimulus

U.S. stocks rose, giving the Standard & Poor’s 500 Index its first back-to-back weekly rally since April, on speculation central banks will act to boost the economy as investors awaited Greek elections this weekend.

Microsoft Corp. (MSFT) gained 2.3 percent as a person familiar with the matter said the company will announce plans next week to sell a tablet computer running the next version of Windows. IntercontinentalExchange Inc. added 4.7 percent as its bid for the London Metal Exchange was rejected in favor of Hong Kong Exchanges & Clearing Ltd.’s offer. Facebook Inc. (FB)  jumped 6.1 percent and capped the first weekly gain since it went public.

The S&P 500 rose 1 percent to 1,342.84 at 4 p.m. New York time, the highest since May 11. The Dow Jones Industrial Average climbed 115.26 points, or 0.9 percent, to 12,767.17. Trading volume for exchange-listed stocks in the U.S. was about 7.5 billion shares, 11 percent above the three-month average.

“Ahead of Sunday’s election in Greece, central bankers stand ready,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote today. “With all the water central banks have expended out of their fire hoses in their attempt to ‘do something,’ I can only think of magic candles. Those candles you blow out that only flare up again immediately after.”

Expectations for global policy action grew as central banks intensified warnings that Europe’s failure to tame its crisis threatens the economy. European Central Bank policy makers have overcome a key concern about taking the benchmark rate below 1 percent, two euro-area central bank officials said. The June 17 vote will turn on whether Greeks accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk becoming the first to exit the 17-member currency.

Fed Action

Stocks also rose on speculation the Federal Reserve may join central banks in taking steps to boost growth. Data today showed that industrial production unexpectedly fell and consumer confidence slid, adding to evidence of U.S. economic weakness. U.S. policy makers meet June 19-20.

“There’s hope of some coordinated action if bad news does occur,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York. He spoke in a telephone interview. “There’s the Greek election. It could be an ongoing process.”

David Bianco, Deutsche Bank AG’s chief U.S. equity strategist, withdrew a forecast that the S&P 500 (SPX) will post a near-term gain of 5 percent or more, citing uncertainty before Greece’s elections. While Bianco maintained his year-end projection of 1,475 for the index, he said he’s no longer convinced the next 5 percent move in the gauge is higher.

Least-Tied

Concern about Europe’s debt crisis and a global slowdown put the S&P 500 on the brink of a so-called correction this month. It fell 9.9 percent from an almost four-year high in April through June 1. Since then, the lowest valuation in six months and bets on policy action drove the gauge up 5.1 percent. The S&P 500 rose 1.3 percent this week.

All 10 groups in the S&P 500 rose today as energy and technology shares had the biggest rallies. Chevron Corp. (CVX), the second-largest U.S. energy company, added 2.4 percent to $104.33. Oracle Corp. (ORCL), the biggest maker of database software, added 2.9 percent to $27.70 after ThinkEquity LLC recommended buying the shares.

Microsoft jumped 2.3 percent to $30.02. The company may demonstrate the tablet computer at an event scheduled in Los Angeles on June 18, said a person familiar with the plans. The company has said it aims to release the new Windows 8 operating system in time for the holiday season. Frank Shaw, a spokesman for Microsoft, declined to comment.

Bidding Process

IntercontinentalExchange, the second-largest U.S. futures market, rallied 4.7 percent to $134.80. ICE (ICE) and Hong Kong Exchanges were the two parties left in a bidding process announced by the LME in September. The LME said today it would no longer be seeking competing takeover offers.

Facebook rose 6.1 percent to $30.01, extending its weekly advance to 11 percent. The company asked a court to consolidate more than 40 shareholder lawsuits over its initial public offering last month. Investors sued Facebook and Nasdaq OMX Group Inc. over problems in trading company shares on May 18, the first day they were publicly available.

Navistar International Corp. (NAV) soared 7.6 percent to $29.95. MHR Fund Management LLC disclosed a 13.6 percent stake in the truckmaker, more than billionaire investor Carl Icahn’s 11.9 percent holding. MHR is run by Mark Rachesky, a former protege of Icahn’s. MHR “may seek to engage in discussions with management,” according to a regulatory filing.

Financial Shares

Financial shares in the S&P 500 advanced 1.4 percent.Bank of America Corp. (BAC) (BAC) added 3.1 percent to $7.90, after slumping as much as 1.4 percent earlier today.

David Trone, an analyst at JMP Securities LLC, expects some of the largest financial institutions to underperform as recent developments in Europe increase concern the region will experience “significant” damage.

SAIC Inc. (SAI) (SAI) jumped 5.1 percent to $12.24. The defense contractor specializing in computer services was raised to overweight from neutral at JPMorgan Chase & Co.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 10 stocks slumped 2.2 percent. AMR Corp. Chief Executive Officer Tom Horton asked an ad hoc bondholder group to study his plan for a stand-alone American Airlines before reviewing a possible merger for the bankrupt carrier, two people familiar with the matter said. Horton expressed frustration with attention being given to a pending US Airways Group Inc. (LCC) (LCC) merger bid, the people said.

US Airways

US Airways tumbled 3.6 percent to $12.03. Southwest Airlines Co. (LUV) (LUV) dropped 2.9 percent to $8.93.

Any multiyear rally in U.S. stocks may depend on a signal that the bond market has yet to send, according to Michael Hartnett, Bank of America’s chief global equity strategist.

Bond yields have to reach “an inflection point” before shares can move into what’s known as a secular bull market if history is any guide, Hartnett wrote this week.

Hartnett highlighted three inflection points in the past century that foreshadowed stock-market booms during the 1920s, after World War II, and throughout most of the 1980s and 1990s.

A comparable surge in share prices is unlikely, he wrote, “until Treasury yields rise in response to stronger growth and a healthier global economy.” The 10-year yield fell to a record 1.4387 percent this month.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Lessons From Facebook's IPO

The social network's bumpy first week highlights the dangers of investing in buzz.

Facebook's (FB) debut on the public market last Friday didn't do much to quell the heated chatter about the IPO. The only big change was that the tone switched from being distinctly positive to distinctly negative. Instead of hearing about the firm's breathless growth, we instead got plenty of reports on the myriad ways that the offering was allegedly mishandled. Investors that jumped in early were likely shaking their hands and licking their wounds, but even those who stayed on the sidelines can learn plenty from the hubbub.

IPOs Can Be Treacherous Investors had several complaints about the Facebook offering this week. The first was mostly technical. It now seems clear that  Nasdaq's(NDAQ) systems were not up to snuff for the huge volume of trades that poured through the exchange. The initial trading went so poorly, there were even rumors this week that Facebook was considering switching its listing to the New York Stock Exchange(NYX).

And although the mechanics of trading are important to all investors (remember 2010's Flash Crash), most people were more troubled by the news of how revised projections for Facebook's growth were disseminated. It emerged this week that  Morgan Stanley (MS) and  Goldman Sachs (GS) revised down projections for Facebook's growth ahead of the IPO, but they told only a small group of clients about it.

There is no sign that the banks did anything illegal, but it does underscore just how big the information asymmetry is for most IPOs. Small investors don't have much to go on before diving into an offering. They get a few SEC fillings and a few years of historical results. Compare this to the banks and their top clients, who have access to senior management and a much deeper knowledge of the business.

And the banks also have a vested interest in stoking the hype and talks of lofty growth levels. Their client is Facebook, not investors. Bankers are trying to maximize the amount of money that Facebook raises and to boost the returns of early shareholders cashing out. So the fact that they weren't exactly trumpeting the downwardly revised numbers shouldn't come as a huge shock.

Luckily, this informational advantage fades as a company spends more time on the public markets. Investors of all stripes get to see many more quarters of financial performance and can listen to management conference calls, and more analysts have an opportunity to weigh in on the stock. As a result, the direction of the business can become clearer. But trying to get in on an IPO that first day is more of a leap of faith than buying an established company's stock.

Buzz Doesn't Equal ProfitThe Facebook offering also pointed to the dangers of chasing hype. Talk about the future of Facebook was on the lips of not just growth fund managers, but plenty of smaller investors who wanted to get in on the action.

The buzz for Facebook was deafening; a service that touches 500 million people daily has a tendency to do that. But just because something makes great cocktail party conversation, doesn't mean it makes sense as an investment at any price. Facebook may have a great future ahead of it (and signs look like it does), but if you don't buy the stock when it is trading for a fraction of its value, it can be hard to profit from that growth. If the stock is priced to perfection, it will likely tumble at the first stumble.

If anything, the buzz itself is a good sign that a stock might be frothy. We've seen time and time again investors chasing hot sectors and hot stocks only to be burned as the buzz moves elsewhere. It takes only a cursory glance at Morningstar's investor return data to see how investors have a knack for picking investments at the wrong time.

In Facebook's case, it seems that plenty of investors piled on not because they liked the stock at $38, but because they thought there was a greater fool ready to buy it at $45. This is a dangerous game to play. If everyone is thinking that way, demand can drop in a hurry, and shares can fall, as we've seen since Facebook's debut. It's important to look beyond what is trendy to what is cheap.

Tech Is Not BulletproofOne of the surprising trends that emerged post-financial crisis was the ascension of a new wave of Internet companies. Thanks to new cloud services from  Amazon(AMZN) and others, and the rise of smartphones, this new breed of tech firm could get off the ground without needing much capital, which was in very short supply during the crisis. Given that these were basically the only new firms on the block, and also given the huge growth numbers they posted, excitement over them grew very quickly. Private market valuations shot through the roof, and investors anxiously waited to get their hands on the first IPOs.

But now that investors have gotten a closer look at these firms, they seem to be less excited about their prospects. Take a quick look at the post-first trade performance at Groupon (GRPN) (-54%),  Zynga (ZNGA) (-28%), and Pandora (P)(-33%) to see how fast sentiment has moved away from some of these names. (LinkedIn (LNKD), with its easy-to-understand monetization model, is a notable exception). Facebook could be another addition to stocks that have wilted, at least in the short term, in the public markets, as investors closely weighed the growth prospects against the price.

It's not that Facebook isn't a great company; we give it a wide moat and think it deserves a lofty valuation--just not quite as lofty as the company hoped when it priced its IPO. This offering was just another example, albeit a high-profile one, that tech IPOs aren't special and that there is no reason to believe tech valuations have become unmoored from reality. Just like any other company, the fundamentals need to support the valuation, and in this case, they didn't justify a stock price well above $38. Perhaps this whole episode will finally debunk the myth that this new wave of firms are somehow immune to normal economics.

The vast majority of investors, particularly those with a long-term focus, let the Facebook IPO come and go without losing a dollar. But the entire episode provided a great lesson on the perils of following the hype.

J.P. Morgan Plans Risk-Panel Shift

The board of J.P. Morgan Chase & Co. is expected to shake up its risk-policy committee in the wake of more than $2 billion in trading losses, people familiar with the matter said.

Directors Timothy Flynn and James Bell, who joined the New York company's board over the past year and have backgrounds in risk and finance, are considered candidates to join the committee, these people said. Either Mr. Flynn or Mr. Bell is expected to join the risk panel, a person familiar with the bank said.

The change was in the works before the company on May 10 disclosed losses tied to wagers on corporate-credit indexes placed by a unit called the Chief Investment Office, which includes a trader who has been called the "London whale" for his market-moving bets, the person said.

The blowup at the nation's largest bank by assets has raised questions among shareholders about the strength of risk controls and the level of oversight at the board, and tarnished the risk-management reputation of Chairman and Chief Executive James Dimon. Shares of J.P. Morgan have dropped 18% since the losses were disclosed, wiping $27 billion off the company's market value. They closed down 47 cents, or 1.4%, at $33.50 on Friday.

The risk-policy committee is responsible for "oversight of the CEO's and senior management's responsibilities to assess and manage the firm's credit risk, market rate risk, interest rate risk, investment risk, liquidity risk and reputational risk," according to regulatory filings.None of the directors could be reached for comment. It isn't clear whether any of the current risk-committee members will leave the panel.

Board members view the trading miscues as the responsibility of top executives, said one person familiar with the board's deliberations. The risk committee of the board "doesn't get into specific management issues," this person said.

Approving higher risk limits on trades, for instance, "is not something [committee members] would approve,'' this person explained. A risk committee typically deals "with broad-brush issues like, 'What are our policies? What are our controls? Do they work?'"

The New York bank is investigating the losses, in an inquiry led by its auditing and legal departments in cooperation with outside auditors and ex-Securities and Exchange Commission enforcement chief William McLucas, now a partner at Wilmer Hale in Washington. The board's audit and risk committees will likely meet every week for the next three months to get updates on the probe. The in-house inquiry is focusing on several areas, including whether the bank set risk limits too high for the Chief Investment Office. Last year, the audit committee met 15 times and the risk panel seven times.

CtW Investment Group, which represents pension funds that hold about six million J.P. Morgan shares, this month called for Mr. Crown to give up his committee chairmanship and for Ms. Futter to step down, according to a letter the group sent to the board's presiding director Lee R. Raymond. Ms. Futter was a director at American International Group Inc. before the insurer ran into problems during the financial crisis. She resigned from AIG's board in July 2008.

CtW Investment first outlined its concerns in a separate 2011 letter that said "the current three-person risk policy committee, without a single expert in banking or financial regulation, is simply not up the task of overseeing risk management at one of the world's largest and most complex financial institutions." Mr. Crown made $300,000 in compensation as a J.P. Morgan director last year, according to a bank filing, while Mr. Cote and Ms. Futter each made $245,000.

The investor group also is asking the bank's risk committee to independently examine how the bank's trading loss occurred, and to determine whether J.P. Morgan's compensation programs "inadvertently incentivize excessive risk-taking," according to the letter sent May 14.

Mr. Flynn and Mr. Bell would be well suited to the new role, said another person familiar with the board's deliberations, because of their work histories, the person said.

Mr. Flynn, who joined the board this month, is former chairman for accounting firm KPMG International and former CEO of its U.S. unit. Mr. Bell retired April 1 as chief financial officer for aerospace giant Boeing Co. Mr. Bell, who joined the board last November, could leave the audit committee as part of the changes, one of these people said.