21 ms·

How will the correction in the stock market impact startup fundraising?

110 points by marc__1 5y ago

candiddevmike 5y ago
There was an article about all the unicorn IPOs from last year being under their IPO price, I think that's a good indicator of what's going to happen: valuations falling back to earth, you need to be building a business that doesn't rely on VC money. Time to stop handwaving unsustainable companies as "growth plays"
- bshipp 5y ago
  We are going on over two decades of almost continuous quantitative easing, starting with Greenspan after the dot-com burst, going nuclear under Paulson/Bernanke in 2008/9, and then continuing to increase over the past decade and a half. I don't know what this market is but I have no confidence that the past 50 years of growth can be sustained in this environment. We're already seeing the impact of cheap money everywhere, with an economy built on continuously increasing asset valuations. It's come to such a point that even the slightest economic contraction must be avoided or it risks triggering the same collapse that was avoided by the narrowest of margins in 2008. I don't want to be pessimistic. I want to be optimistic. I'm just running out of ideas for which rabbit can be pulled out of a hat to keep this charade going for another 20 years.
  - candiddevmike 5y ago
    I agree, but I'm not optimistic at all. Mostly because we're seeing these issues without even trying to tackle the real elephant in the room: climate change. Carbon taxes, real costs of energy... So many negative externalities that don't show up on a companies quarterly report but will eventually (hopefully).
    - bshipp 5y ago
      > Without even trying to tackle the real elephant in the room: climate change. I've never been a climate change denier but I had secretly hoped it would occur slow enough that our economy could possibly adjust for it, over time. Judging by the weather chaos we've already started to see over the past few years it seems like an impossible dream now. Our economy is predicated on a certain amount of climatic stability over time. a sort of "bounded expected risk". The more investment you have to make into risk mitigation the less you have to invest in productive pursuits. We will be stuck treading water, if we're even lucky, instead of swimming forward.
      - nitrogen 5y ago
        There's still room for innovation in rapid-fire, affordable mitigations for extreme weather. Like levee-in-a-box, bridge-in-a-box, deployable temporary sea walls, etc. Also room to innovate in techniques for detecting and mitigating vulnerable conditions, e.g. land slide risks.
        gammarator 5y ago
        Those are still new costs, though.
    - ttunguz 5y ago
      I'm hopeful that the capital markets will incentivize entrepreneurs to fix this problem much more quickly than most people anticipate
      - bshipp 5y ago
        The issue is, honestly, the free-rider effect. It's too difficult for an entrepreneur to get paid unless they resolve a specific problem in such a way that they can demonstrate value to a customer. The only thing that will generally make money is impact mitigation, because they can sell it to an affected buyer. At least, as a general rule. With government-driven carbon reduction requirements feeding into a trading market it might get to the point that there's enough money to warrant huge investments in sequestration. But I'm not optimistic that capitalism-driven countries will want to impose a high enough cost to spur that kind of investment. At least, they haven't up until this point.
  - ttunguz 5y ago
    The US stock market represents something like 60% of all stock market value, but the US GDP is only 25% of all global GDP. If you are long to stock market, you have to believe that this kind of disproportionate behavior continues because there's a lot of confidence in the US markets and the dollar.
    - dragonwriter 5y ago
      > If you are long to stock market, you have to believe that this kind of disproportionate behavior continues because there's a lot of confidence in the US markets and the dollar. Or, the structure of international capitalism means firms in the core extract value from the peripheries. The US stock market isn't “stocks of firms tied only to their operations in the US”.
      - ttunguz 5y ago
        There's a really good article on this from Lynn Alden that I will paste here that talks about how this dynamic actually implies that the US is selling its long-term capital assets in favor of short-term capital goods that depreciate, so it's actually a negative for the US. https://www.lynalden.com/january-2022-newsletter/ https://www.lynalden.com/january-2022-newsletter/
    - candiddevmike 5y ago
      How much of that is represented by tech giants? I personally think the US economy is starting to revolve around them too much, to the point where the economy serves their interests, not ours. They're "too much of an inconvenience to fail", they've tied every one of us to their success either through the free/cheap services they offer or their outsized influence on our retirement.
      - bshipp 5y ago
        I remember that song from 2008. I'm still very bitter about it. Fine, be too big to fail. But why do they get treated any differently than a small bank in Kansas that gets upside-down and needs the FDIC to roll in and take it over? As far as I'm concerned, too big to fail means nationalized and broken up until they are small enough to not pose a threat to the entire economy. When nationalized because they are on the brink of failure, investors get shoved to the back of the line after all other claimants and wiped out. I mean, this model has served capitalism well for eons. Why are the self-proclaimed captains of capitalism, Wall Street, the ones who get a free pass to stay in business? Now I'm all angry again.
  - azth 5y ago
    Switching to a usury free economic system is a start.
    - satellite2 5y ago
      Free money! Yay
      - azth 5y ago
        That's a straw man. Because money would only be lent for charity, people will actually engage in proper non parasitic financial transactions for business.
sokoloff 5y ago
The correction calculation here is based on a price-to-revenue* multiple, not on an outright price reduction. My read is “revenues are finally coming in to support the previously very frothy valuations”. That doesn’t seem like a terrible state of affairs overall. * - edited: previously said price-to-earnings
- danielmarkbruce 5y ago
  That's not the right read. Public software companies prices are way off outside FAANG.
  - gunapologist99 5y ago
    Why is that? What does not being FAANG have to do with it? Are we talking about older public software companies like Oracle, Adobe, Microsoft, etc, or are we talking about newer ones or even ancillary (not-directly "software" companies) like Docusign?
    - danielmarkbruce 5y ago
      Because people are selling...To me it seems that the FAANG stocks weren't actually overpriced. Many of the other software companies seemed overpriced to me. But any strong sounding narrative as to why is going to be.. incomplete. Someone else will say inflation and interest rates. Someone else will say something else. All you know is people are selling. It's pretty much across the board... Salesforce, Veeva, Datadog, Blend, New Relic, Okta, Zoom, ServiceNow, Twilio, Atlassian, Docusign and on and on and on. Most of them off 40% from the highs.
      - ttunguz 5y ago
        there's been a rotation out of technology because of the prospect of interest rates going up. because most technology companies don't generate earnings (profits) for many years, and because many investors use DCF (discounted cash flow calculations) to value a company. the greater the interest rate, the lower the value for these business. that's why it's a broad sell-off.
boomer918 5y ago
I'm just sad my stock portfolio took a dive. I started to invest into the market for the first time during the pandemic (thanks to RH). Not sure what I learned so far.
- ttGpN5Nde3pK 5y ago
  Comment I read on here a year or so ago stuck with me. "time in the market beats timing the market"
- reducesuffering 5y ago
  Stick to VTI and VXUS? VTI is up 12.4% the last year and flat 0% since October. https://www.bogleheads.org/wiki/Main_Page https://www.bogleheads.org/wiki/Main_Page
  - Gobd 5y ago
    The S&P 500 is also flat since October and up 16.3% in the last year. VXUS is down in the last year. If you want a simple strategy buy into an S&P 500 index fund and don't worry until you're closer to retirement.
- sokoloff 5y ago
  Have a read about the world’s worst market timer: https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market... In short: there’s never been a 20 year period where the broad-based US large-cap equities index have lost money. The future isn’t guaranteed, but I’m betting on that record to continue.
  - thiele 5y ago
    The linked article only looks at the time period of the last 50 years. If you believe in big cycles (like covered in Ray Dalio’s “The Changing World Order”), expand that perspective to several hundred years and market returns don’t look quite as guaranteed over a given 20 year period. I’m still formulating my own thesis but it’s a good read if you are into such things.
nanis 5y ago
Apart from the stock market, you have to take into account the persistent inflationary environment that is being created. Inflation shortens horizons. The usually impatient early investor becomes more impatient as the uncertainty surrounding the value of a dollar that might be earned years hence becomes greater and greater. Therefore, people's appetites for projects that might pay off in 10 years fall in favor of projects that might pay in five. Their appetites for a five for a five year horizon fall in favor of projects that might pay off in three. And, those fall behind projects that might pay off in a year which fall out of favor in as people seek something that will pay off this quarter. So, if you are working on something that will pay off immediately, you're good.
- searealist 5y ago
  Wouldn't the value of companies track inflation making them an attractive store of value?
  - jpau 5y ago
    Inflation means tomorrow’s money is worth less; it impacts cashflows more when they are further out. When the cost of money is near-zero, today’s values of near and distant cashflows are similar. When the cost is high, they are very different. I’m not sure if you mean in your question that a project shown to track inflation will be unaffected. This is somewhat true — we see this in inflation-adjusted bonds etc. But inflation is far from a uniform effect, and I’ve never seen a pitch include inflation in its estimates…
    - fshbbdssbbgdd 5y ago
      Inflation means prices are increasing. Your company probably gets more revenue when prices go up. Whether you come out ahead will depend on a lot of factors - what kind of inputs you have, how much pricing power, etc. But you can’t just discount your cash flows by the inflation rate unless you also incorporate the increased revenue into your estimate of the cash flows.
      - 5y ago
nodesocket 5y ago
The current administration is asleep at a wheel with regards to the economy (inflation and government spending) and their sad grasp at voting rights (i.e. we aren’t gonna win unless we “reform” voting in our favor) only shows their desperation and lack of understand of what’s important. As James Carville famously said, “it’s the economy stupid.” As everyday items and gas prices continue to rise and the stock market continues to plummet (destroying wealth and retirement) I fear they are not equipped to addresses the economy and make tough (anti progressive) decisions.
- thesausageking 5y ago
  The huge increase in the money supply and in government spending were well before the new administration took over: https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL https://tradingeconomics.com/united-states/government-spending https://tradingeconomics.com/united-states/government-spendi...
  - silisili 5y ago
    I'm not saying you're wrong, only that finger pointing and figuring out who started it isn't helping anyone. Let's say for example Trump and Trump alone caused this. Fine, but now it's up to Biden to fix it. So far, doing nothing at all hasn't been particularly effective.
    - bobberkarl 5y ago
      It doesn't work when you started your argument by finger pointing.
      - deleted 5y ago
        [deleted]
      - CheezeIt 5y ago
        The current administration is the one at the wheel right now.
elipsey 5y ago
I don't know what the "75th Percentile Forward Multiple" is, but if it's down %52, it's down more than "the stock market"; the S&P is down about %6.5, NASDAQ is down a bit less than %12. Perhaps this article is not meant to be understood by a mere programmer like myself. Could someone kindly explain what I should be worried about?
- deleted 5y ago
  [deleted]
- ttunguz 5y ago
  Yes, it's a portion of the stock market that's going down a lot. The money is going from technology companies into other companies like healthcare and energy companies. So while the overall market may not be down that much, the technology market is going down a bit. In relative terms, it's gone down to the same levels is about 2 years ago. So there's no disaster scenario here, but there is a pretty significant drop in price from a high level.
- fshbbdssbbgdd 5y ago
  The “forward multiple” is the ratio dividing the stock’s current price by its predicted earnings over the next 12 months. You can think of it as a measure of credibility and optimism - do investors believe company predictions to make more money in the next year? And will they grow even more in the future? Tech company stocks dropped some while their predicted earnings kept increasing. Both the numerator and denominator contributed to the decrease in that particular metric.
cs702 5y ago
Meh. The OP looks only at historical data only over the past 10 years -- all of which occurred during the longest-ever rising (bull) stock market in US history (excluding the temporary shock and recovery at the beginning of the pandemic). A more useful analysis would look at data during the 2000 to 2002 period, during which the market caps of many prominent, high-quality tech stocks declined by 80% or more. What happened to startup fundraising during that period? Or it would look at data from the 1973-1982 period, during which many so-called "nifty fifty" tech stocks (think IBM and Xerox in their heyday) declined by large double-digit percentages and did not recover for nine years. What happened to startup fundraising during that period?
- ttunguz 5y ago
  It's a fair point. I didn't go back that far in the data set. I think the one major difference between the last 10 years and the.com era was the lack of viable business models in that time. I think the crypto ecosystem looks more like 2000 than the current software market because most of the software companies today worth billions generate hundreds of millions of revenue. Also, the interest rates within the last 10 years are going to be most similar to the ones that the FED is contemplating implementing over the next couple of years. The rates in the early 2000s were significantly higher in the 3-6% range. https://www.macrotrends.net/2015/fed-funds-rate-historical-chart https://www.macrotrends.net/2015/fed-funds-rate-historical-c.... Last, the third trend that's important is just the volume of dollars going into venture Capital which is 20 times what it was during that period of time
  - redisman 5y ago
    > lack of viable business models To be fair this still remains to be seen for most? public tech companies. It’s easy to be unprofitable and just say you’re following the Amazon model. But can Uber or AirBnb actually run a business that increases their net profit YoY sustainably? I think that remains to be seen. The super easy money in both private and public markets for over a decade has kicked up this fog so that it’s hard to make out what is going on. It could be that many are just as sustainable in a tight market as they would’ve been in 1999
bgroat 5y ago
Not relevant to this discussion. But has anyone noticed that we only ever say "correction" to mean "going down". Has their been a period or an asset class in recent history where informed individuals said something to the effect of, "You want to be exposed to X for when there's a correction" referring to an unreasonable low valued asset reaching a more reasonable valuation?
- edrxty 5y ago
  It happens all the time when you get into certain verticals, it's just that humans are generally more likely overvalue assets than undervalue them and the broader "stock market" is the grandest of all overvalued assets
- rr808 5y ago
  You're right correction is a euphemism to sound better than loss. It implies stocks will continue to go up in the medium/long term, which isn't always the case esp for tech stocks. Another recent euphemism is volatility. You didn't just lose 25k you just experienced some "volatility".
- amurthy1 5y ago
  Reminds me of my last job when an unexpected 1% drop in our team's primary goal metric would trigger VPs and directors to have us launch a full investigation into potential causes. But a similar unexpected increase, no one would bat an eye. Similarly in the stock market, when things are going poorly, people are eager to understand what happened, so a "correction" is a comforting explanation that the underlying asset is still solid and it's just market dynamics at play. But when the stock markets go up unexpectedly, people are generally happy to accept their good fortune without thinking too much about it.
  - bgroat 5y ago
    I think you and u/rreo8 have it. It's away to suggest control even in a loss
- jbay808 5y ago
  I'd guess that precious metals investors would say that they're awaiting a correction (to the upside) in gold prices, if it weren't for the confusion that that would cause.
simonebrunozzi 5y ago
Related: how will the correction in the crypto market impact (crypto) startup fundraising?
trevormcneal 5y ago
most tech stocks still much better than they were 1 year ago... it is just a very very small correction, nothing really crashed and there is nothing to panic at all. to avoid recency bias, take a look at history and I mean from 1910-2010, at this perspective, few weeks are barely visible.

110 points by marc__1 5y ago

There was an article about all the unicorn IPOs from last year being under their IPO price, I think that's a good indicator of what's going to happen: valuations falling back to earth, you need to be building a business that doesn't rely on VC money. Time to stop handwaving unsustainable companies as "growth plays"

bshipp 5y ago
We are going on over two decades of almost continuous quantitative easing, starting with Greenspan after the dot-com burst, going nuclear under Paulson/Bernanke in 2008/9, and then continuing to increase over the past decade and a half. I don't know what this market is but I have no confidence that the past 50 years of growth can be sustained in this environment. We're already seeing the impact of cheap money everywhere, with an economy built on continuously increasing asset valuations. It's come to such a point that even the slightest economic contraction must be avoided or it risks triggering the same collapse that was avoided by the narrowest of margins in 2008. I don't want to be pessimistic. I want to be optimistic. I'm just running out of ideas for which rabbit can be pulled out of a hat to keep this charade going for another 20 years.
- candiddevmike 5y ago
  I agree, but I'm not optimistic at all. Mostly because we're seeing these issues without even trying to tackle the real elephant in the room: climate change. Carbon taxes, real costs of energy... So many negative externalities that don't show up on a companies quarterly report but will eventually (hopefully).
  - bshipp 5y ago
    > Without even trying to tackle the real elephant in the room: climate change. I've never been a climate change denier but I had secretly hoped it would occur slow enough that our economy could possibly adjust for it, over time. Judging by the weather chaos we've already started to see over the past few years it seems like an impossible dream now. Our economy is predicated on a certain amount of climatic stability over time. a sort of "bounded expected risk". The more investment you have to make into risk mitigation the less you have to invest in productive pursuits. We will be stuck treading water, if we're even lucky, instead of swimming forward.
    - nitrogen 5y ago
      There's still room for innovation in rapid-fire, affordable mitigations for extreme weather. Like levee-in-a-box, bridge-in-a-box, deployable temporary sea walls, etc. Also room to innovate in techniques for detecting and mitigating vulnerable conditions, e.g. land slide risks.
      - gammarator 5y ago
        Those are still new costs, though.
  - ttunguz 5y ago
    I'm hopeful that the capital markets will incentivize entrepreneurs to fix this problem much more quickly than most people anticipate
    - bshipp 5y ago
      The issue is, honestly, the free-rider effect. It's too difficult for an entrepreneur to get paid unless they resolve a specific problem in such a way that they can demonstrate value to a customer. The only thing that will generally make money is impact mitigation, because they can sell it to an affected buyer. At least, as a general rule. With government-driven carbon reduction requirements feeding into a trading market it might get to the point that there's enough money to warrant huge investments in sequestration. But I'm not optimistic that capitalism-driven countries will want to impose a high enough cost to spur that kind of investment. At least, they haven't up until this point.
- ttunguz 5y ago
  The US stock market represents something like 60% of all stock market value, but the US GDP is only 25% of all global GDP. If you are long to stock market, you have to believe that this kind of disproportionate behavior continues because there's a lot of confidence in the US markets and the dollar.
  - dragonwriter 5y ago
    > If you are long to stock market, you have to believe that this kind of disproportionate behavior continues because there's a lot of confidence in the US markets and the dollar. Or, the structure of international capitalism means firms in the core extract value from the peripheries. The US stock market isn't “stocks of firms tied only to their operations in the US”.
    - ttunguz 5y ago
      There's a really good article on this from Lynn Alden that I will paste here that talks about how this dynamic actually implies that the US is selling its long-term capital assets in favor of short-term capital goods that depreciate, so it's actually a negative for the US. https://www.lynalden.com/january-2022-newsletter/ https://www.lynalden.com/january-2022-newsletter/
  - candiddevmike 5y ago
    How much of that is represented by tech giants? I personally think the US economy is starting to revolve around them too much, to the point where the economy serves their interests, not ours. They're "too much of an inconvenience to fail", they've tied every one of us to their success either through the free/cheap services they offer or their outsized influence on our retirement.
    - bshipp 5y ago
      I remember that song from 2008. I'm still very bitter about it. Fine, be too big to fail. But why do they get treated any differently than a small bank in Kansas that gets upside-down and needs the FDIC to roll in and take it over? As far as I'm concerned, too big to fail means nationalized and broken up until they are small enough to not pose a threat to the entire economy. When nationalized because they are on the brink of failure, investors get shoved to the back of the line after all other claimants and wiped out. I mean, this model has served capitalism well for eons. Why are the self-proclaimed captains of capitalism, Wall Street, the ones who get a free pass to stay in business? Now I'm all angry again.
- azth 5y ago
  Switching to a usury free economic system is a start.
  - satellite2 5y ago
    Free money! Yay
    - azth 5y ago
      That's a straw man. Because money would only be lent for charity, people will actually engage in proper non parasitic financial transactions for business.

sokoloff 5y ago

The correction calculation here is based on a price-to-revenue* multiple, not on an outright price reduction. My read is “revenues are finally coming in to support the previously very frothy valuations”. That doesn’t seem like a terrible state of affairs overall. * - edited: previously said price-to-earnings

danielmarkbruce 5y ago
That's not the right read. Public software companies prices are way off outside FAANG.
- gunapologist99 5y ago
  Why is that? What does not being FAANG have to do with it? Are we talking about older public software companies like Oracle, Adobe, Microsoft, etc, or are we talking about newer ones or even ancillary (not-directly "software" companies) like Docusign?
  - danielmarkbruce 5y ago
    Because people are selling...To me it seems that the FAANG stocks weren't actually overpriced. Many of the other software companies seemed overpriced to me. But any strong sounding narrative as to why is going to be.. incomplete. Someone else will say inflation and interest rates. Someone else will say something else. All you know is people are selling. It's pretty much across the board... Salesforce, Veeva, Datadog, Blend, New Relic, Okta, Zoom, ServiceNow, Twilio, Atlassian, Docusign and on and on and on. Most of them off 40% from the highs.
    - ttunguz 5y ago
      there's been a rotation out of technology because of the prospect of interest rates going up. because most technology companies don't generate earnings (profits) for many years, and because many investors use DCF (discounted cash flow calculations) to value a company. the greater the interest rate, the lower the value for these business. that's why it's a broad sell-off.

boomer918 5y ago

I'm just sad my stock portfolio took a dive. I started to invest into the market for the first time during the pandemic (thanks to RH). Not sure what I learned so far.

ttGpN5Nde3pK 5y ago
Comment I read on here a year or so ago stuck with me. "time in the market beats timing the market"
reducesuffering 5y ago
Stick to VTI and VXUS? VTI is up 12.4% the last year and flat 0% since October. https://www.bogleheads.org/wiki/Main_Page https://www.bogleheads.org/wiki/Main_Page
- Gobd 5y ago
  The S&P 500 is also flat since October and up 16.3% in the last year. VXUS is down in the last year. If you want a simple strategy buy into an S&P 500 index fund and don't worry until you're closer to retirement.
sokoloff 5y ago
Have a read about the world’s worst market timer: https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ https://awealthofcommonsense.com/2014/02/worlds-worst-market... In short: there’s never been a 20 year period where the broad-based US large-cap equities index have lost money. The future isn’t guaranteed, but I’m betting on that record to continue.
- thiele 5y ago
  The linked article only looks at the time period of the last 50 years. If you believe in big cycles (like covered in Ray Dalio’s “The Changing World Order”), expand that perspective to several hundred years and market returns don’t look quite as guaranteed over a given 20 year period. I’m still formulating my own thesis but it’s a good read if you are into such things.

nanis 5y ago

Apart from the stock market, you have to take into account the persistent inflationary environment that is being created. Inflation shortens horizons. The usually impatient early investor becomes more impatient as the uncertainty surrounding the value of a dollar that might be earned years hence becomes greater and greater. Therefore, people's appetites for projects that might pay off in 10 years fall in favor of projects that might pay in five. Their appetites for a five for a five year horizon fall in favor of projects that might pay off in three. And, those fall behind projects that might pay off in a year which fall out of favor in as people seek something that will pay off this quarter. So, if you are working on something that will pay off immediately, you're good.

searealist 5y ago
Wouldn't the value of companies track inflation making them an attractive store of value?
- jpau 5y ago
  Inflation means tomorrow’s money is worth less; it impacts cashflows more when they are further out. When the cost of money is near-zero, today’s values of near and distant cashflows are similar. When the cost is high, they are very different. I’m not sure if you mean in your question that a project shown to track inflation will be unaffected. This is somewhat true — we see this in inflation-adjusted bonds etc. But inflation is far from a uniform effect, and I’ve never seen a pitch include inflation in its estimates…
  - fshbbdssbbgdd 5y ago
    Inflation means prices are increasing. Your company probably gets more revenue when prices go up. Whether you come out ahead will depend on a lot of factors - what kind of inputs you have, how much pricing power, etc. But you can’t just discount your cash flows by the inflation rate unless you also incorporate the increased revenue into your estimate of the cash flows.
    - 5y ago

nodesocket 5y ago

The current administration is asleep at a wheel with regards to the economy (inflation and government spending) and their sad grasp at voting rights (i.e. we aren’t gonna win unless we “reform” voting in our favor) only shows their desperation and lack of understand of what’s important. As James Carville famously said, “it’s the economy stupid.” As everyday items and gas prices continue to rise and the stock market continues to plummet (destroying wealth and retirement) I fear they are not equipped to addresses the economy and make tough (anti progressive) decisions.

thesausageking 5y ago
The huge increase in the money supply and in government spending were well before the new administration took over: https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL https://tradingeconomics.com/united-states/government-spending https://tradingeconomics.com/united-states/government-spendi...
- silisili 5y ago
  I'm not saying you're wrong, only that finger pointing and figuring out who started it isn't helping anyone. Let's say for example Trump and Trump alone caused this. Fine, but now it's up to Biden to fix it. So far, doing nothing at all hasn't been particularly effective.
  - bobberkarl 5y ago
    It doesn't work when you started your argument by finger pointing.
    - deleted 5y ago
      [deleted]
    - CheezeIt 5y ago
      The current administration is the one at the wheel right now.

elipsey 5y ago

I don't know what the "75th Percentile Forward Multiple" is, but if it's down %52, it's down more than "the stock market"; the S&P is down about %6.5, NASDAQ is down a bit less than %12. Perhaps this article is not meant to be understood by a mere programmer like myself. Could someone kindly explain what I should be worried about?

deleted 5y ago
[deleted]
ttunguz 5y ago
Yes, it's a portion of the stock market that's going down a lot. The money is going from technology companies into other companies like healthcare and energy companies. So while the overall market may not be down that much, the technology market is going down a bit. In relative terms, it's gone down to the same levels is about 2 years ago. So there's no disaster scenario here, but there is a pretty significant drop in price from a high level.
fshbbdssbbgdd 5y ago
The “forward multiple” is the ratio dividing the stock’s current price by its predicted earnings over the next 12 months. You can think of it as a measure of credibility and optimism - do investors believe company predictions to make more money in the next year? And will they grow even more in the future? Tech company stocks dropped some while their predicted earnings kept increasing. Both the numerator and denominator contributed to the decrease in that particular metric.

cs702 5y ago

Meh. The OP looks only at historical data only over the past 10 years -- all of which occurred during the longest-ever rising (bull) stock market in US history (excluding the temporary shock and recovery at the beginning of the pandemic). A more useful analysis would look at data during the 2000 to 2002 period, during which the market caps of many prominent, high-quality tech stocks declined by 80% or more. What happened to startup fundraising during that period? Or it would look at data from the 1973-1982 period, during which many so-called "nifty fifty" tech stocks (think IBM and Xerox in their heyday) declined by large double-digit percentages and did not recover for nine years. What happened to startup fundraising during that period?

ttunguz 5y ago
It's a fair point. I didn't go back that far in the data set. I think the one major difference between the last 10 years and the.com era was the lack of viable business models in that time. I think the crypto ecosystem looks more like 2000 than the current software market because most of the software companies today worth billions generate hundreds of millions of revenue. Also, the interest rates within the last 10 years are going to be most similar to the ones that the FED is contemplating implementing over the next couple of years. The rates in the early 2000s were significantly higher in the 3-6% range. https://www.macrotrends.net/2015/fed-funds-rate-historical-chart https://www.macrotrends.net/2015/fed-funds-rate-historical-c.... Last, the third trend that's important is just the volume of dollars going into venture Capital which is 20 times what it was during that period of time
- redisman 5y ago
  > lack of viable business models To be fair this still remains to be seen for most? public tech companies. It’s easy to be unprofitable and just say you’re following the Amazon model. But can Uber or AirBnb actually run a business that increases their net profit YoY sustainably? I think that remains to be seen. The super easy money in both private and public markets for over a decade has kicked up this fog so that it’s hard to make out what is going on. It could be that many are just as sustainable in a tight market as they would’ve been in 1999

bgroat 5y ago

Not relevant to this discussion. But has anyone noticed that we only ever say "correction" to mean "going down". Has their been a period or an asset class in recent history where informed individuals said something to the effect of, "You want to be exposed to X for when there's a correction" referring to an unreasonable low valued asset reaching a more reasonable valuation?

edrxty 5y ago
It happens all the time when you get into certain verticals, it's just that humans are generally more likely overvalue assets than undervalue them and the broader "stock market" is the grandest of all overvalued assets
rr808 5y ago
You're right correction is a euphemism to sound better than loss. It implies stocks will continue to go up in the medium/long term, which isn't always the case esp for tech stocks. Another recent euphemism is volatility. You didn't just lose 25k you just experienced some "volatility".
amurthy1 5y ago
Reminds me of my last job when an unexpected 1% drop in our team's primary goal metric would trigger VPs and directors to have us launch a full investigation into potential causes. But a similar unexpected increase, no one would bat an eye. Similarly in the stock market, when things are going poorly, people are eager to understand what happened, so a "correction" is a comforting explanation that the underlying asset is still solid and it's just market dynamics at play. But when the stock markets go up unexpectedly, people are generally happy to accept their good fortune without thinking too much about it.
- bgroat 5y ago
  I think you and u/rreo8 have it. It's away to suggest control even in a loss
jbay808 5y ago
I'd guess that precious metals investors would say that they're awaiting a correction (to the upside) in gold prices, if it weren't for the confusion that that would cause.

simonebrunozzi 5y ago

Related: how will the correction in the crypto market impact (crypto) startup fundraising?

trevormcneal 5y ago

most tech stocks still much better than they were 1 year ago... it is just a very very small correction, nothing really crashed and there is nothing to panic at all. to avoid recency bias, take a look at history and I mean from 1910-2010, at this perspective, few weeks are barely visible.