

The Incredible Sinking Bubble - csmajorfive
http://bhorowitz.com/2011/06/26/the-incredible-sinking-bubble-debating-the-tech-bubble-with-steve-blank-part-iii/

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dstein
He's using the low valuation of real tech companies (like Cisco) to argue the
absurd value of social networking websites isn't out of whack. I don't agree
with this logic at all. Although Groupon and Facebook are websites, they are
really marketing companies. The bubble is in the value being placed on social
networking audience sizes.

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jonmc12
I'm not sure it is a sound argument because most of the valuations in question
are being set by private and institutional investors. So, the evidence of this
phase of the bubble (as measured in the Blank paradigm) would be a survey of
the sentiment of the smaller subset of individuals who set valuations for
companies - not the population as a whole.

Perhaps this is a nuance of the simplified model Blank presented (in the sense
that every model is wrong). However, in my mind, it actually supports the
Blank argument that a small set of private investors are effectively trying to
create an investment that the public views as 'the opportunity of a lifetime'.

In other words, the Horowitz's argument is exploiting the holes in Blank's
argument to divert from the obvious fact that we live in a cycle where it is
clearly in the interest of every early-stage, private investor to be
optimistic about valuations because they have a very good track record selling
their story a greater fool in current market conditions.

Falling prices of public stocks (linkedin, pandora) is evidence that sellers
have run out of greater fools for the moment. However, the IPO price itself is
largely a function of the valuation private investors can convince the
institutional investors to buy at and the _initial_ sentiment the can market
to the public (so in this case its the average sentiment of only the eager set
of initial public investors).

I think this IPO price, and the funding rounds leading up to the IPO are of
most interest. Further, I think the sentiment of the subset of the public
involved in these investments is what Blank is talking about. And, I think
Horowitz knows that, and is merely trying to deflect the debate in a direction
that takes it away from looking like the insider-driven system that it is.

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wisty
I guess a lot of outsiders are failing to see why "this time it's different".
A/B testing, a savvier industry, and customers becoming more trusting of
e-commerce means that the web sector really can grow.

There's a limit, and the industry will hit a wall when people start investing
under the assumption that earnings will keep growing (rather than hitting a
wall), but that doesn't mean that the industry is overvalued now.

Oh, wait, I need a conclusion. Avoid stuff that's obviously over-hyped, but
don't worry too much about the macro stuff yet. I doubt that an industry-wide
catastrophe is imminent, and you probably have bigger worries.

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kordless
Glancing back at historic prices shows Yahoo's stock dipped nearly 30% from
April to May of 1999 before starting to going nuts a year later. It'd be
interesting to look at some historic prices of a company like IPET to see what
the price swings were prior to the run up and subsequent popping.

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iamwil
As long as there is a wariness of a bubble, there will be no bubble. When
everyone throws caution to the wind because they feel like they'd miss out,
that's when it happens.

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trotsky
Lots and lots of people in the valley and elsewhere were wary of a bubble
'97-'00. We used to talk about it all the time. That didn't stop it from
happening.

Mr. Horowitz needs to ensure that in the next few years he can sell on the
public market stock they've been paying increasingly higher premiums for
privately.

It's clearly in his best interests to dismiss any bubble talk.

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emmett
This is a purely ad hominem argument. His arguments can be assessed on their
merits, you shouldn't dismiss them because of who he is.

And his central point seems to me to be pretty good: in a bubble like the
97-00 bubble, you'd expect newly IPO'd tech stocks to be soaring, not sinking.
It doesn't appear that's happening.

There's a different question which is whether two or three specific companies
(Facebook, LinkedIn, Twitter) are overvalued right now. But even if they are,
that's not really evidence of a tech bubble unless tech stocks in _general_
are overvalued.

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adw
Also: early stage investments are more aggressive than ever right now. The
sums of money are relatively small, as are the number of market participants,
so the risk of contagion isn't big in a macro sense, but it's potentially a
real thing...

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plainOldText
The bubble is in the eye of the beholder.

