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How do you know the tech companies were overvalued at the old interest rates, and it wasn't just a due to interest rate changes? It seems pretty obvious if int

How do you know the tech companies were overvalued at the old interest rates, and it wasn't just a due to interest rate changes? It seems pretty obvious if interest rates are high, tech companies which make most of their profits far in the future were going to be worth less than value companies where most of their profits are in the short term.

dventimi 4y ago
> tech companies which make most of their profits in the future Nobody can predict the future, not even you.
- acchow 4y ago
  You don’t need to predict the future. The fair value of a company is the discounted future cash flows. Increase the discount rate and the valuation falls
  - dventimi 4y ago
    Nobody knows future cash flows.
- JamesBarney 4y ago
  I think if you're an investor and you value companies not just on how they are doing today but but how you think they will do in the future you will be more successful than if you just look at today's numbers.
rcme 4y ago
> How do you know the tech companies were overvalued at the old interest rates, and it wasn't just a due to interest rate changes? Obviously I can't know one way or the other, but I laid out my personal belief in the original post. Essentially, many "tech" companies are just digital versions or existing business and products. In such cases, there isn't as much value to capture compared to unlocking massive amounts of human potential like a company like Google. The market, however, was valuing these two types of tech companies the same. Peloton is a good example. Peloton is a great product and can really make a dent in the home-gym market. But the home-gym market is already relatively mature, so Peloton really shouldn't have been commanding such insane multiples on any metric (sales, revenue, cash flow, etc.)
- JamesBarney 4y ago
  I think the 100's of intelligent sophisticated investors that influence the price of the market didn't suddenly start to understand the fundamentals of companies they didn't before because of a change in interest rates. It makes much more sense they just plugged in a higher discount rate to their models. Peloton has fallen because they went from a company with rapidly growing revenue to one falling revenue.
  - rcme 4y ago
    > Peloton has fallen because they went from a company with rapidly growing revenue to one falling revenue. Exactly. Their growth expectations were unrealistic. They were bringing a marginally better product to a saturated market under the guise of being a tech company. They could be a good business if run lean, but they’ll never realistically command insane multiples on revenue.
twelve40 4y ago
i'm confused by this automatic lumping together of "tech" and "growth". Will Google or Facebook make most of their profits far in the future? Is the universal expectation for Google to double next year? and people ran out of patience and dumped Google stock so that it halved in value? of course not, something else drove this.

dventimi 4y ago

> tech companies which make most of their profits in the future Nobody can predict the future, not even you.

acchow 4y ago
You don’t need to predict the future. The fair value of a company is the discounted future cash flows. Increase the discount rate and the valuation falls
- dventimi 4y ago
  Nobody knows future cash flows.
JamesBarney 4y ago
I think if you're an investor and you value companies not just on how they are doing today but but how you think they will do in the future you will be more successful than if you just look at today's numbers.

rcme 4y ago

> How do you know the tech companies were overvalued at the old interest rates, and it wasn't just a due to interest rate changes? Obviously I can't know one way or the other, but I laid out my personal belief in the original post. Essentially, many "tech" companies are just digital versions or existing business and products. In such cases, there isn't as much value to capture compared to unlocking massive amounts of human potential like a company like Google. The market, however, was valuing these two types of tech companies the same. Peloton is a good example. Peloton is a great product and can really make a dent in the home-gym market. But the home-gym market is already relatively mature, so Peloton really shouldn't have been commanding such insane multiples on any metric (sales, revenue, cash flow, etc.)

JamesBarney 4y ago
I think the 100's of intelligent sophisticated investors that influence the price of the market didn't suddenly start to understand the fundamentals of companies they didn't before because of a change in interest rates. It makes much more sense they just plugged in a higher discount rate to their models. Peloton has fallen because they went from a company with rapidly growing revenue to one falling revenue.
- rcme 4y ago
  > Peloton has fallen because they went from a company with rapidly growing revenue to one falling revenue. Exactly. Their growth expectations were unrealistic. They were bringing a marginally better product to a saturated market under the guise of being a tech company. They could be a good business if run lean, but they’ll never realistically command insane multiples on revenue.

twelve40 4y ago

i'm confused by this automatic lumping together of "tech" and "growth". Will Google or Facebook make most of their profits far in the future? Is the universal expectation for Google to double next year? and people ran out of patience and dumped Google stock so that it halved in value? of course not, something else drove this.