( CNN ) -- A week into Facebook 's debut on the Nasdaq stock exchange , its initial offering price of $ 38 per share dropped to $ 31.91 . Retail investors ' fears deepened as they realize they are losing a lot of money . The Facebook IPO did not follow the usual script . Instead of launching the largest social media company in the world as a legitimate and valuable business , the IPO has laid bare all of the questions and doubts about its potential performance . So why did the Facebook IPO bomb as badly as it did ? In a lawsuit filed last week , some investors contend that Morgan Stanley , the lead underwriter of the IPO , withheld key information about a negative financial forecast from them while sharing it with their institutional clients . In this conspiratorial tale , the bad guys are the insiders at Facebook , the investment bankers and the favored institutional clients of these bankers . The bankers set the offering price at $ 38 , knowing that the stock was not worth that much , the insiders in the company unloaded their shares at the offering price and institutional investors stayed on the sidelines . Individual small investors who bought at the offering price suffered as the price collapsed . In other words , the suckers are the rest of the world . Opinion : Was Facebook IPO a bust ? But I do n't buy this story . First , unlike many others who have seen the crises of the last few years as evidence that bankers are evil , I see them more as inept . Facebook 's IPO is just proof that if you want something valued , you should not ask a bank to do it . None of the actors in this story can be happy with how Facebook 's IPO has unfolded in its first week . The investment banks look like bad `` deal makers , '' which strikes at the heart of one of their few remaining revenue-generating skills . Any profits or commissions that Morgan Stanley booked on this IPO are overwhelmed by the reputation hit that it took and the consequences this will have on future deals . The Facebook insiders who remain have not only lost billions in value but have made it more difficult to unload their remaining shares down the road . And most of the shares at the offering price went to the institutional investors , who now face paper or real losses on those shares . Facebook IPO : Outraged investor cries grow louder . So , what happened ? I think the investment bankers priced the offering based on how shares of Facebook were trading in the private market and their assessments of institutional demand . I do n't think that revenue growth , margins , risk or any other fundamentals played much of a role in the pricing . I do n't fault them for playing the momentum game , but they played it badly . By pushing up the offering price to its upper limit and by expanding the offering to allow more insiders to cash out , they broke the spell that momentum casts over investors . It would have happened eventually , but they did not anticipate how quickly the shift would occur . What are the lessons to take from this mess ? First , do n't assume that bankers , experts and analysts know what they are talking about . When they tout an investment , be especially skeptical if they have a stake in it . Reactions : Facebook IPO underwhelms Web , too . Second , much as it soothes the ego to think that your portfolio setbacks are because of a conspiracy , where large institutional clients make a killing and the individual investors get the crumbs from the table , it is institutional clients who lose the most in bad deals because they have more to lose . Finally , remember that markets make mistakes , and they can make bigger ones after a meltdown like this one . I would not be surprised if disappointed investors drive the price down to a point where you and I can have the ultimate revenge on Mark Zuckerberg : Buy his company at a bargain basement price and make money off him . The opinions expressed in this commentary are solely those of Aswath Damodaran .
A week into Facebook 's debut on the market , its price was down . Aswath Damodaran : Facebook 's IPO debacle was result of ineptitude . Damodaran : Do n't assume that bankers and experts know what they are talking about .