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This is a really good take, and I wanna expand it further: when interest rates are lower and planning horizons are longer, valuations get bigger. If you think

by ketzo 4y ago

This is a really good take, and I wanna expand it further: when interest rates are lower and planning horizons are longer, valuations get bigger. If you think of a company’s market capitalization as a rough measure of its future cash flows, that valuation is gonna be a lot higher when those future cash flows don’t have to fight much future interest. Higher future valuations means it’s worth paying more NOW to capture a slice of that valuation.

drc500free 4y ago
The cynic in me would say that the valuations were driven more from the cash-supply side, which allowed a lot of people to play "VC investor" or "VP with a sexy R&D portfolio." No one really leads with a low-level analyst's DCF model in real life, it's backfitted to justify an investment that feels right at the multiple that has comps. I think this is going to be less about the academic economics, and more of a baseball card bubble bursting around software products that promised free growth at 100% unit margins. The cash is still there, and still wants to be invested, but everyone's a little timid and doesn't want to look irresponsible.