There is nothing more maddening to an old-school investor than a bubble. And especially a bubble in which young people are getting outrageously rich. But here we are, 11 years after the last technology bubble popped, in the midst of another of those exuberant moments. Facebook valued at $75 billion. Groupon, a three year old coupon business, at $25 billion. College dropouts with a knack for programming and a devilish knowledge of our online behaviours are suddenly worth more than a roomful of Goldman Sachs partners.
The valuations are crazy, the value investors splutter. There are real businesses with real earnings worth nothing like these shooting stars. It’s immoral! Well, maybe.
The most dangerous thought in any bubble is ‘this time it’s different’. Every bubble, tech or otherwise, reflects the same phenomenon, a wild divergence between price and value. In the early 1980s, Wall Street was infatuated with any company with the suffix ‘-onics’.
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