5 ms·

The Incredible Sinking Bubble

48 points by csmajorfive 15y ago

iamwil 15y ago
As long as there is a wariness of a bubble, there will be no bubble. When everyone throws caution to the wind because they feel like they'd miss out, that's when it happens.
- ChuckMcM 15y ago
  I think this was the reasoning in the article and it seems pretty supportable. Basically when a company is 'new' its value proposition is unknown, it can fluctuate a lot. Once its known the value rationalizes. The side point that tech stocks are suffering a general malaise because of the fear however should not be missed either. When Sun Micro was young (I started 2 weeks after it went public) I recall being annoyed that IBM (then the dominant 'computer' player) would have a bad quarter and people would sell Sun stock (and it would sink in price). While the whole time Sun was doing great business, growing really quickly, and taking money away from IBM left and right. My financial adviser and I discussed it and I got to learn about what it meant to be part of the 'data processing sector' even if you were the up and coming dominant force in that sector. I agree with Ben that the pendulum is pretty hard over in the 'fear' side, hints of 'bubble' and people flee tech stocks. But solid companies get painted with the same brush just because they are part of the 'tech sector'. One of the things that bolsters Ben's point is that there have not been a lot of individual investors trying to pile on to the IPOs. This is a good sign that they are standing on the sidelines. If you're an investor, you might be watching the tech sector to see when the swing back to the 'greed' side starts and try to jump on and ride it over.
- trotsky 15y ago
  Lots and lots of people in the valley and elsewhere were wary of a bubble '97-'00. We used to talk about it all the time. That didn't stop it from happening. Mr. Horowitz needs to ensure that in the next few years he can sell on the public market stock they've been paying increasingly higher premiums for privately. It's clearly in his best interests to dismiss any bubble talk.
  - emmett 15y ago
    This is a purely ad hominem argument. His arguments can be assessed on their merits, you shouldn't dismiss them because of who he is. And his central point seems to me to be pretty good: in a bubble like the 97-00 bubble, you'd expect newly IPO'd tech stocks to be soaring, not sinking. It doesn't appear that's happening. There's a different question which is whether two or three specific companies (Facebook, LinkedIn, Twitter) are overvalued right now. But even if they are, that's not really evidence of a tech bubble unless tech stocks in general are overvalued.
    - adw 15y ago
      Also: early stage investments are more aggressive than ever right now. The sums of money are relatively small, as are the number of market participants, so the risk of contagion isn't big in a macro sense, but it's potentially a real thing...
dstein 15y ago
He's using the low valuation of real tech companies (like Cisco) to argue the absurd value of social networking websites isn't out of whack. I don't agree with this logic at all. Although Groupon and Facebook are websites, they are really marketing companies. The bubble is in the value being placed on social networking audience sizes.
kordless 15y ago
Glancing back at historic prices shows Yahoo's stock dipped nearly 30% from April to May of 1999 before starting to going nuts a year later. It'd be interesting to look at some historic prices of a company like IPET to see what the price swings were prior to the run up and subsequent popping.
plainOldText 15y ago
The bubble is in the eye of the beholder.
jonmc12 15y ago
I'm not sure it is a sound argument because most of the valuations in question are being set by private and institutional investors. So, the evidence of this phase of the bubble (as measured in the Blank paradigm) would be a survey of the sentiment of the smaller subset of individuals who set valuations for companies - not the population as a whole. Perhaps this is a nuance of the simplified model Blank presented (in the sense that every model is wrong). However, in my mind, it actually supports the Blank argument that a small set of private investors are effectively trying to create an investment that the public views as 'the opportunity of a lifetime'. In other words, the Horowitz's argument is exploiting the holes in Blank's argument to divert from the obvious fact that we live in a cycle where it is clearly in the interest of every early-stage, private investor to be optimistic about valuations because they have a very good track record selling their story a greater fool in current market conditions. Falling prices of public stocks (linkedin, pandora) is evidence that sellers have run out of greater fools for the moment. However, the IPO price itself is largely a function of the valuation private investors can convince the institutional investors to buy at and the initial sentiment the can market to the public (so in this case its the average sentiment of only the eager set of initial public investors). I think this IPO price, and the funding rounds leading up to the IPO are of most interest. Further, I think the sentiment of the subset of the public involved in these investments is what Blank is talking about. And, I think Horowitz knows that, and is merely trying to deflect the debate in a direction that takes it away from looking like the insider-driven system that it is.
wisty 15y ago
I guess a lot of outsiders are failing to see why "this time it's different". A/B testing, a savvier industry, and customers becoming more trusting of e-commerce means that the web sector really can grow. There's a limit, and the industry will hit a wall when people start investing under the assumption that earnings will keep growing (rather than hitting a wall), but that doesn't mean that the industry is overvalued now. Oh, wait, I need a conclusion. Avoid stuff that's obviously over-hyped, but don't worry too much about the macro stuff yet. I doubt that an industry-wide catastrophe is imminent, and you probably have bigger worries.

48 points by csmajorfive 15y ago

As long as there is a wariness of a bubble, there will be no bubble. When everyone throws caution to the wind because they feel like they'd miss out, that's when it happens.

ChuckMcM 15y ago
I think this was the reasoning in the article and it seems pretty supportable. Basically when a company is 'new' its value proposition is unknown, it can fluctuate a lot. Once its known the value rationalizes. The side point that tech stocks are suffering a general malaise because of the fear however should not be missed either. When Sun Micro was young (I started 2 weeks after it went public) I recall being annoyed that IBM (then the dominant 'computer' player) would have a bad quarter and people would sell Sun stock (and it would sink in price). While the whole time Sun was doing great business, growing really quickly, and taking money away from IBM left and right. My financial adviser and I discussed it and I got to learn about what it meant to be part of the 'data processing sector' even if you were the up and coming dominant force in that sector. I agree with Ben that the pendulum is pretty hard over in the 'fear' side, hints of 'bubble' and people flee tech stocks. But solid companies get painted with the same brush just because they are part of the 'tech sector'. One of the things that bolsters Ben's point is that there have not been a lot of individual investors trying to pile on to the IPOs. This is a good sign that they are standing on the sidelines. If you're an investor, you might be watching the tech sector to see when the swing back to the 'greed' side starts and try to jump on and ride it over.
trotsky 15y ago
Lots and lots of people in the valley and elsewhere were wary of a bubble '97-'00. We used to talk about it all the time. That didn't stop it from happening. Mr. Horowitz needs to ensure that in the next few years he can sell on the public market stock they've been paying increasingly higher premiums for privately. It's clearly in his best interests to dismiss any bubble talk.
- emmett 15y ago
  This is a purely ad hominem argument. His arguments can be assessed on their merits, you shouldn't dismiss them because of who he is. And his central point seems to me to be pretty good: in a bubble like the 97-00 bubble, you'd expect newly IPO'd tech stocks to be soaring, not sinking. It doesn't appear that's happening. There's a different question which is whether two or three specific companies (Facebook, LinkedIn, Twitter) are overvalued right now. But even if they are, that's not really evidence of a tech bubble unless tech stocks in general are overvalued.
  - adw 15y ago
    Also: early stage investments are more aggressive than ever right now. The sums of money are relatively small, as are the number of market participants, so the risk of contagion isn't big in a macro sense, but it's potentially a real thing...

dstein 15y ago

He's using the low valuation of real tech companies (like Cisco) to argue the absurd value of social networking websites isn't out of whack. I don't agree with this logic at all. Although Groupon and Facebook are websites, they are really marketing companies. The bubble is in the value being placed on social networking audience sizes.

kordless 15y ago

Glancing back at historic prices shows Yahoo's stock dipped nearly 30% from April to May of 1999 before starting to going nuts a year later. It'd be interesting to look at some historic prices of a company like IPET to see what the price swings were prior to the run up and subsequent popping.

plainOldText 15y ago

The bubble is in the eye of the beholder.

jonmc12 15y ago

I'm not sure it is a sound argument because most of the valuations in question are being set by private and institutional investors. So, the evidence of this phase of the bubble (as measured in the Blank paradigm) would be a survey of the sentiment of the smaller subset of individuals who set valuations for companies - not the population as a whole. Perhaps this is a nuance of the simplified model Blank presented (in the sense that every model is wrong). However, in my mind, it actually supports the Blank argument that a small set of private investors are effectively trying to create an investment that the public views as 'the opportunity of a lifetime'. In other words, the Horowitz's argument is exploiting the holes in Blank's argument to divert from the obvious fact that we live in a cycle where it is clearly in the interest of every early-stage, private investor to be optimistic about valuations because they have a very good track record selling their story a greater fool in current market conditions. Falling prices of public stocks (linkedin, pandora) is evidence that sellers have run out of greater fools for the moment. However, the IPO price itself is largely a function of the valuation private investors can convince the institutional investors to buy at and the initial sentiment the can market to the public (so in this case its the average sentiment of only the eager set of initial public investors). I think this IPO price, and the funding rounds leading up to the IPO are of most interest. Further, I think the sentiment of the subset of the public involved in these investments is what Blank is talking about. And, I think Horowitz knows that, and is merely trying to deflect the debate in a direction that takes it away from looking like the insider-driven system that it is.

wisty 15y ago

I guess a lot of outsiders are failing to see why "this time it's different". A/B testing, a savvier industry, and customers becoming more trusting of e-commerce means that the web sector really can grow. There's a limit, and the industry will hit a wall when people start investing under the assumption that earnings will keep growing (rather than hitting a wall), but that doesn't mean that the industry is overvalued now. Oh, wait, I need a conclusion. Avoid stuff that's obviously over-hyped, but don't worry too much about the macro stuff yet. I doubt that an industry-wide catastrophe is imminent, and you probably have bigger worries.