Now to the valuation. I have no insight into how the market will value Facebook (the IPO won’t be held until the second quarter of this year); however, at an indicative market capitalisation of $80 billion, Facebook will be trading on a historic price-to-earnings (PE) multiple of 80:1 – that is, investors will be willing to pay one dollar for every $80 Facebook earns. Keep in mind that if the rate of growth in net income in 2011 is projected forward to 2012, at $80 billion, Facebook’s forecast PE ratio would drop to around 40-50 to 1.

These are big multiples. That said, I’m sure there will be many in the market who ‘like’ it.

How to buy international shares

So, if you do want to buy Facebook or other international shares on the secondary market, how can you do it?

As a starting point, you should have a quick review of your SMSF’s Investment Strategy and ensure that the purchase is both allowed and in keeping with the fund’s investment objectives. If you need to make some changes, don’t forget to record them in a formal ‘trustee minute’.

Most major brokerage houses offer access to international markets, although typically, they don’t focus on it and it’s not integrated. Online brokers, like CommSec and ETrade, probably have the best coverage in terms of the number of different markets and exchanges, research and company data and trading support.

For shares on the NYSE or NASDAQ, brokerage costs start around $65, as the following table shows:

There are also foreign exchange fluctuations and spreads to be mindful of (ETrade charges up to 0.6% of the foreign currency exchange rate used to convert your Australian dollars into US dollars), and custody fees. The latter are usually waived if you are ‘active’, however, they can be quite expensive if you just hold stock as an investor. CommSec charges US$75 per annum for an ‘inactive account’, while ETrade charges 0.10% per annum on the value of your international portfolio for every month you don’t trade.

So, if you want to buy Facebook, factor in around 5% total ‘in and out’ transaction costs on a purchase of $5,000, and 3% on purchases greater than $10,000. When opening your account, you will need to navigate the US Department of Inland Revenue’s horrible W-8BEN form, and then renew this status every three years.

While there are other ways to get exposure to the likes of Facebook, Google or Apple, buying the shares directly remains the purest way and potentially the most rewarding. As with all investments, it pays to know what you are buying and its relative value.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.