

Are we entering another bubble? - dgildeh
http://www.davidgildeh.com/blog/2012/04/20/are-we-entering-another-bubble

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mseebach
A bubble is made from more than insane valuations - it requires a thorough
delusion about the inherent value of the asset-class that's the source of the
bubble. In the dotcom bubble, anyone that did anything online was considered
infinite revenue potential, even if they had no revenue and no business plan.
In the mortgage bubble, no-one had the fantasy to imagine the real-estate
market going down on the whole. The ratings agencies' worst-case scenario was
zero-growth.

It's obvious in hindsight, but apparently it wasn't in the present.

While there are isolated instances of on-the-face bizarre valuations, such as
Instagram or color.com, the prevailing actors in the market are actually
making money.

In other words, if this bubble pops, who will loose out? Will it have
catastrophic consequences for the economy at large?

~~~
jonnathanson
_"In other words, if this bubble pops, who will loose out? Will it have
catastrophic consequences for the economy at large?"_

Bubbles aren't defined solely by the extent of their damage post-pop. They're
defined by the delta between bubble valuation and real value. In admittedly
simplistic terms: the size of that delta, multiplied by the number of people
who buy into it, usually dictates the impact of the burst.

Right now, we're arguably in the early stages of a bubble. Almost everyone
admits that startup valuations, not to mention a few recent, high-profile IPOs
(Groupon in particular) are inflated. Money is easy.

I'd argue that today's operative question isn't "by how much are valuations
inflated," but rather, "how many people are buying into them?" And where will
the contagion spread from here?

We have a few troubling indicators. Celebrities like Ashton Kutcher are
leaping into the angel and VC scene. I have nothing against Ashton Kutcher,
but I do question his fundamental grasp of the technology business. And I
wonder whether his sloshing easy money around the startup world is inherently
constructive or destructive to rational valuations within that world.
Furthermore, Ashton's just the tip of the iceberg. CAA, Hollywood's leading
Hollywood talent agency, is launching a VC arm focused on tech companies.
Precisely what a Hollywood talent agency understands about tech firms is
anyone's guess -- but CAA has more money than God, is extremely well connected
to investment banks and hedge funds, and could serve as a bridge to the
general public's interest in tech equity. (We'll recall that the 1999-era
bubble was marked by a similar influx of carpetbagging investors from outside
the tech industry).

People often point out that the frothy tech startups of 2012 are fundamentally
unlike the frothy tech startups of 1999, in as much as 1999's startups went
IPO, and today's startups generally get acquired. This is fair. But in both
cases, investment money became (is becoming) very easy and very loose. This
leads to a propagation (and propping up) of fundamentally unsound startups.
History indicates that, eventually, there can be so many bad apples in the
batch that people stop being able to tell the good ones from the bad ones.
That's when the trouble begins. We're not there yet, but why wait around and
let it happen?

~~~
fiesycal
I agree with your point but I think using Ashton Kutcher as your example was
misplaced. Ashton Kutcher has been investing for a while now and he also
started a Biomedical Engineering degree before dropping out^, so I think his
fundamental grasp of technology would be decent.

^<http://en.wikipedia.org/wiki/Ashton_Kutcher#Early_life>

~~~
jonnathanson
Ok, that's a fair counterpoint. I didn't mean to pick on Ashton specifically,
but rather, to point out that others are following in his footsteps.

Also, on a side note: even though he'll never read this, I feel like I owe him
a sincere apology for making a quick and general assumption about him.
Seriously. More than happy to stand corrected about him personally.

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VolatileVoid
Someone - a very wise, very successful someone - once provided a pretty good
definition of a bubble. A bubble is when the fundamentals are right, but the
timing is wrong.

For example, let's consider the most recent housing bubble. The housing bubble
was predicated - at least in the beginning - on the fact that populations are
growing, but land mass (and livable land mass, at that) remains constant. If
we work under that assumption, land is at a premimum, and therefore _in the
long term_, it can only go up. However, the problem is that too much happened
too soon, and it created artificially high prices.

The tech bubble of the 90s was largely similar. It was a case where any
retailer could chuck a .com at the end of their name and make millions. The
fundamentals, however, were largely correct. I do almost ALL my big-ticket
purchases online. Amazon's online retail presence is huge and pervasive.

I believe we MAY now be in an "information bubble." This isn't the .com bubble
of yore. Rather it is a battle for your information. Facebook's got a nice
chunk of it, as does Google. Instagram had a nice chunk of your photos.
Essentially, information is at a premium right now. To what end? I suppose
that remains the deciding factor on whether or not we are ACTUALLY in a
bubble. If the information can be monetized then perhaps what we are seeing is
simply the markets catching up to the tech trends. Eventually it will slow
down - but that's entirely different from a "pop."

The alternative to the above is that people start to realize that the
information isn't wholly reliable, and can not be converted (easily - for now)
into revenue. In that case I'd expect there to be a correction at some point.
But I think the fundamentals are sound. Information is the currency of the
future - especially as we become more and more connected.

~~~
dageshi
I think what you have is a handful of 800 pound gorillas who have successfully
figured out how to monetise information hoovering up start ups for talent and
information that they can plug into their own platforms & monetise. Everything
else is perhaps feeding off that, so my bet would be, this all stops when
someone ends up buying twitter, that might well be google, at that point
everyone will be busy integrating all their new data into their existing
products and attempting to monetise it.

My 2cents anyway.

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jasonkester
I hope so. Bubbles are _fun_

Seriously. Bubbles are where you get paid outlandish sums to program computers
for a living. They're where your silly web startup gets bought for $40M for no
particular reason. They're where you watch your stock portfolio double in six
months, then double again four months later. A Bubble is truly a great time to
be alive.

The important point is to recognize a Bubble for what it is and don't make the
mistake of thinking you're actually as rich as you seem to be. Cash out
frequently into things that are actually worth money, and don't go buying that
$1.6M house that you can "afford" with all this "money" rolling in.

It'll stop rolling in soon enough. Then most of it will roll back out. And if
you stay smart you will have had an absolutely great time of it.

At least that was my experience in the late 90's, quadrupling the salary,
being "one year from retirement", then unquadrupling the salary and having a
regular amount of savings and a regular looking stock portfolio. But while it
was happening, it sure was good.

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sparknlaunch12
Does it matter? Markets go up and down, rise and fall. Recently heard breast
augmentation was a reliable indicator of market changes. Ultimately you want
to make the most of crazy money while following key business fundamentals...
Like being a going concern by making a profit.

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johnnygleeson
There is a Bubble in Bubble Predictions; Robert Shiller
[http://www.dailyfinance.com/2012/04/11/robert-shiller-on-
the...](http://www.dailyfinance.com/2012/04/11/robert-shiller-on-the-bubble-
in-bubble-predictions/)

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tcohen
A bubble occurs when people who shouldn't invest, invest and ultimately lose
money.

Right now it's still just a bunch of rich guys investing, which won't effect
the 99% when they lose money.

~~~
ebaysucks
Sure, but the rich guys are LPs in VC funds next to institutional investors
who get their money straight from QE.

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jsmcgd
People have been predicting tech bubbles since this website was called Startup
News. Each large large investment/valuation/acquistion is grist to the mill.
Eventually they will be correct.

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zachinglis
Every year since the original dot com bubble, there have been posts asking and
speculating we're in a bubble. Yet the clocks keep ticking.

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dsolomon
I wish.

I'd like to see salaries return to the pre-dotbomb days 10+ years ago.

