5 ms·

Wasn't overvaluing the potential of newer companies over established institutions with significant holdings one of the hallmarks of .com bubble ridiculousness?

Wasn't overvaluing the potential of newer companies over established institutions with significant holdings one of the hallmarks of .com bubble ridiculousness? I'm not particularly knowledgeable about finance and economics– if someone that is knowledgeable has some insight, I'd love to hear it.

mikeash 10y ago
Totally. Just look at the ridiculous valuations here: https://en.wikipedia.org/wiki/Dot-com_bubble#List_of_companies_significant_to_the_bubble https://en.wikipedia.org/wiki/Dot-com_bubble#List_of_compani... On the other hand, there were some major successes as well. Amazon got its start in the bubble and is now gigantic. eBay is doing great. So is PayPal (which is relevant here, since without PayPal we wouldn't have Tesla). Sometimes these ridiculous valuations are completely unjustified, but sometimes they do come true. Figuring out which is which ahead of time is, well, hard.
- chefandy 10y ago
  So is it the overall volume of overvaluations which was bad? Are we in a similar position now?
  - austenallred 10y ago
    There will always be overvaluations and undervaluations of companies relative to how they'll perform in the future. It's notoriously difficult to predict. In my opinion, however, while there may be some overvaluations now, we're not even in the same universe as we were in 1999/2000. Back then you could take an MBA with a powerpoint, put the word "Internet" on it, and they could conceivably IPO for hundreds of millions with nothing more than that. All of these companies valued at $100m, $1b, $10b with no more than a promise of "one day we'll sell x online and make a lot of money." A couple companies full of genius technologists (Amazon, Paypal) made it through the rubble, but for the most part it was all smoke, mirrors and charades. Contrast that to today. Certainly there are overvalued companies; there always are, but there are also companies that are proving to be worth the hype, and severely undervalued. The Internet is 20x as large, there's real revenue coming in, real profits, and the scale that companies can hit when they land on something solid is incredible. People were crying Bubble when Facebook was valued at $30B because it wasn't making much money. Now it's bringing in billions easily and still growing http://www.marketwatch.com/story/facebook-profit-tops-1-billion-2016-01-27-164853146 http://www.marketwatch.com/story/facebook-profit-tops-1-bill..., now valued at $400B+. So some companies were undervalued, even when everyone was crying "bubble." As an asset class today tech is tiny. The valuations of every tech "unicorn" combined today would be less than Microsoft. Would you rather own every single tech startup that raised venture capital in the past couple years or Microsoft? You could have that discussion, but you wouldn't be crazy to take all of the VC-raising startups. And today the total amount of venture capital raised is a rounding error relative to the rest of the economy. (There's also a discussion around how all asset classes are highly valued today and even bonds are returning negative yields, but we'll save that for another day). Tesla is certainly expensive relative to where it's at today, yet I still put in my entire net worth at $180 http://www.marketwatch.com/story/elon-musk-to-the-guy-who-invested-his-net-worth-in-tesla-we-wont-let-you-down-2016-11-17 http://www.marketwatch.com/story/elon-musk-to-the-guy-who-in... (this is not a move that would be recommended by your financial advisor; my net worth is something I could replace quickly enough that it's not a big deal). Tesla is, in my opinion, building a fortress. It's combining the technology needed to incredible electric cars at large scale with the biggest battery factories in the world, solar-powered roofing, a nationwide charging network, and just some incredible innovations. We've seen Tesla do the impossible an innumerable amount of times in recent years. So the price of Tesla right now is very frothy, but I still think in 10 years I'd rather own 100% of Tesla than 100% of Ford. If you disagree, then Tesla is overvalued, but no one truly knows who will be right. Such is life as a growth stock.
    - plandis 10y ago
      I'd be very very interested in hearing why you invested everything into Tesla. Was your decision based on cold rational logic? Or was it simply "from the gut"?
      - austenallred 10y ago
        I did a ton of analysis, and basically at the end of the day it came out to "will they hit their targets in Q3/Q4 2016 and Q1/Q2 2017?" There's so much unknown that Tesla continuing to de-risk the business step by step gets them in line with the current valuations, and forward-looking it should go up. So I figured that at $180 (a very low price for Tesla historically) that if they did what they were predicting (which no one thought they could) that they would crush the current stock price. They have since hit (or come very close to) all of their targets. Now the entire question short-term is around how the M3 performs. Long-term Tesla is playing a game no one else even sees, so we'd be OK with a couple stumbles.
        bigtimeidiot 10y ago
        >I did a ton of analysis, and basically at the end of the day it came out to "will they hit their targets in Q3/Q4 2016 and Q1/Q2 2017?" The analysis upon which you went "all-in" on Tesla rests on a non-GAAP "delivery" figure (rather than a sales number), covering a few quarters, 1 year before the first model 3 is even built? I'd be interested in seeing that work. What did you think when they missed 2016 delivery estimates by 5%?
        austenallred 10y ago
        I'm aware it's not GAAP. They're showing they can deliver with models x and s. They didn't even have to get to model 3 for me to be up 60% (in four months). I was a little concerned that they missed 2016, but the stock actually went up that day; most thought they would miss by more.
- drzaiusapelord 10y ago
  >Sometimes these ridiculous valuations are completely unjustified, 'Sometimes' is being generous. If we can only cherry-pick the world's biggest tech successes all of whom can be counted on one hand compared to the thousands, if not tens of thousands, of other over-valued companies, then you're really not saying much here. This is like saying, "How are there poor americans, look how rich Bill Gates is!" A few exceptions don't invalidate we're in a bubble or justify the practices that get us in a bubble - traders trying to outfox other traders by reading the tea leaves of hype and ignoring the actually profitability and practicality of the business.
- giarc 10y ago
  Cherry picking a piece or two from your link. >Books-a-Million - Saw its stock >VA Linux - .... They set the record for largest first-day IPO price gain; after the price was set at $30/share, it ended the first day of trading at $239.25/share, a 698% gain (9 December 1999) I don't think we are quite in the situation where valuations are based on updated websites. Nowadays it seems like monthly active users drives valuations which when your revenue is ad based, is a smart metric. In Tesla's case, they are actually shipping cars.
  - mikeash 10y ago
    Agreed. During the dot-com bubble it seems like a lot of stock was driven by abject cluelessness and investors' perceived need to get in on any stock with .com in it. These days, it's more like excessive optimism. People actually understand this stuff, at least vaguely, and if they're getting it wrong it's just because they don't see the downsides.
onmobiletemp 10y ago
Right but tesla is more akin to amazon. Snapchat is more akin to the overhyped failures.

mikeash 10y ago

Totally. Just look at the ridiculous valuations here: https://en.wikipedia.org/wiki/Dot-com_bubble#List_of_companies_significant_to_the_bubble https://en.wikipedia.org/wiki/Dot-com_bubble#List_of_compani... On the other hand, there were some major successes as well. Amazon got its start in the bubble and is now gigantic. eBay is doing great. So is PayPal (which is relevant here, since without PayPal we wouldn't have Tesla). Sometimes these ridiculous valuations are completely unjustified, but sometimes they do come true. Figuring out which is which ahead of time is, well, hard.

chefandy 10y ago
So is it the overall volume of overvaluations which was bad? Are we in a similar position now?
- austenallred 10y ago
  There will always be overvaluations and undervaluations of companies relative to how they'll perform in the future. It's notoriously difficult to predict. In my opinion, however, while there may be some overvaluations now, we're not even in the same universe as we were in 1999/2000. Back then you could take an MBA with a powerpoint, put the word "Internet" on it, and they could conceivably IPO for hundreds of millions with nothing more than that. All of these companies valued at $100m, $1b, $10b with no more than a promise of "one day we'll sell x online and make a lot of money." A couple companies full of genius technologists (Amazon, Paypal) made it through the rubble, but for the most part it was all smoke, mirrors and charades. Contrast that to today. Certainly there are overvalued companies; there always are, but there are also companies that are proving to be worth the hype, and severely undervalued. The Internet is 20x as large, there's real revenue coming in, real profits, and the scale that companies can hit when they land on something solid is incredible. People were crying Bubble when Facebook was valued at $30B because it wasn't making much money. Now it's bringing in billions easily and still growing http://www.marketwatch.com/story/facebook-profit-tops-1-billion-2016-01-27-164853146 http://www.marketwatch.com/story/facebook-profit-tops-1-bill..., now valued at $400B+. So some companies were undervalued, even when everyone was crying "bubble." As an asset class today tech is tiny. The valuations of every tech "unicorn" combined today would be less than Microsoft. Would you rather own every single tech startup that raised venture capital in the past couple years or Microsoft? You could have that discussion, but you wouldn't be crazy to take all of the VC-raising startups. And today the total amount of venture capital raised is a rounding error relative to the rest of the economy. (There's also a discussion around how all asset classes are highly valued today and even bonds are returning negative yields, but we'll save that for another day). Tesla is certainly expensive relative to where it's at today, yet I still put in my entire net worth at $180 http://www.marketwatch.com/story/elon-musk-to-the-guy-who-invested-his-net-worth-in-tesla-we-wont-let-you-down-2016-11-17 http://www.marketwatch.com/story/elon-musk-to-the-guy-who-in... (this is not a move that would be recommended by your financial advisor; my net worth is something I could replace quickly enough that it's not a big deal). Tesla is, in my opinion, building a fortress. It's combining the technology needed to incredible electric cars at large scale with the biggest battery factories in the world, solar-powered roofing, a nationwide charging network, and just some incredible innovations. We've seen Tesla do the impossible an innumerable amount of times in recent years. So the price of Tesla right now is very frothy, but I still think in 10 years I'd rather own 100% of Tesla than 100% of Ford. If you disagree, then Tesla is overvalued, but no one truly knows who will be right. Such is life as a growth stock.
  - plandis 10y ago
    I'd be very very interested in hearing why you invested everything into Tesla. Was your decision based on cold rational logic? Or was it simply "from the gut"?
    - austenallred 10y ago
      I did a ton of analysis, and basically at the end of the day it came out to "will they hit their targets in Q3/Q4 2016 and Q1/Q2 2017?" There's so much unknown that Tesla continuing to de-risk the business step by step gets them in line with the current valuations, and forward-looking it should go up. So I figured that at $180 (a very low price for Tesla historically) that if they did what they were predicting (which no one thought they could) that they would crush the current stock price. They have since hit (or come very close to) all of their targets. Now the entire question short-term is around how the M3 performs. Long-term Tesla is playing a game no one else even sees, so we'd be OK with a couple stumbles.
      - bigtimeidiot 10y ago
        >I did a ton of analysis, and basically at the end of the day it came out to "will they hit their targets in Q3/Q4 2016 and Q1/Q2 2017?" The analysis upon which you went "all-in" on Tesla rests on a non-GAAP "delivery" figure (rather than a sales number), covering a few quarters, 1 year before the first model 3 is even built? I'd be interested in seeing that work. What did you think when they missed 2016 delivery estimates by 5%?
        austenallred 10y ago
        I'm aware it's not GAAP. They're showing they can deliver with models x and s. They didn't even have to get to model 3 for me to be up 60% (in four months). I was a little concerned that they missed 2016, but the stock actually went up that day; most thought they would miss by more.
drzaiusapelord 10y ago
>Sometimes these ridiculous valuations are completely unjustified, 'Sometimes' is being generous. If we can only cherry-pick the world's biggest tech successes all of whom can be counted on one hand compared to the thousands, if not tens of thousands, of other over-valued companies, then you're really not saying much here. This is like saying, "How are there poor americans, look how rich Bill Gates is!" A few exceptions don't invalidate we're in a bubble or justify the practices that get us in a bubble - traders trying to outfox other traders by reading the tea leaves of hype and ignoring the actually profitability and practicality of the business.
giarc 10y ago
Cherry picking a piece or two from your link. >Books-a-Million - Saw its stock >VA Linux - .... They set the record for largest first-day IPO price gain; after the price was set at $30/share, it ended the first day of trading at $239.25/share, a 698% gain (9 December 1999) I don't think we are quite in the situation where valuations are based on updated websites. Nowadays it seems like monthly active users drives valuations which when your revenue is ad based, is a smart metric. In Tesla's case, they are actually shipping cars.
- mikeash 10y ago
  Agreed. During the dot-com bubble it seems like a lot of stock was driven by abject cluelessness and investors' perceived need to get in on any stock with .com in it. These days, it's more like excessive optimism. People actually understand this stuff, at least vaguely, and if they're getting it wrong it's just because they don't see the downsides.

onmobiletemp 10y ago

Right but tesla is more akin to amazon. Snapchat is more akin to the overhyped failures.