
In Silicon Valley, Partying Like It’s 1999 Again - mpg33
http://www.nytimes.com/2013/11/27/technology/in-silicon-valley-partying-like-its-1999-again.html?partner=socialflow&smid=tw-nytimesbusiness&_r=0
======
patmcguire
If they're right, it means the The New York Times has successfully predicted
eight of the last two tech bubbles.

~~~
ChuckMcM
Great bumper sticker in 2001 was "God, one more bubble, this time I'll SELL."

Some interesting analysis I read was take $10K during the period of 1995 -
2000, invest it in tech stocks, sell them when it hit $15K, and invest $10K
again in stocks, sell when it hit $15K, rinse and repeat. When the bubble
bursts you lose all of your $10K investment, but in the last bubble you had
put aside $25K in 'profits.' The point of the analysis was that sticking to
goals and running your investing based on those goals was more effective in a
bubble than 'going long' (as I did btw) The other key was that you did not try
to 'amplify' your risk by selling and then investing all of the money you had
($15K after the first round) because that left money at risk. The money you
pulled out had to go somewhere that was really solid (like an FDIC insured
savings account or CD).

Perhaps I'll get a chance to try that strategy this round.

~~~
deelowe
This is pretty much just dollar cost averaging, right?

~~~
ChuckMcM
No, DCA is continually buying in "small" chunks to amortize the cost per
security across a number of transactions which "smooths out" the noise of the
purchase price into an average across all of the purchases.

This process is a 'rate capture' process, which is that a fixed amount of
principle captures a moderately proportional fraction of the change in price.
With a capture limit (in this case 50%)

I built a simple spreadsheet for you [1] which can illustrate this. In the
spreadsheet there are two scenarios, one the person "pulls the trigger" every
time their investments have grown by the target amount, pull off the growth
and take it out of the game, and then go back in with their basic investment.
In the second scenario they just let it grow and grow and grow. After 5 rounds
with a growth target of 50% they have $35K if they regularly pull the trigger,
and $75K if they let it ride (more money is in play so the same percentage
increase in the market gets you more money back). When the bubble bursts, if
you lose all of the money in play, you end up with $25K and $0.

You can play with the spreadsheet and make some other choices to see how they
work out. The smaller your trigger point the closer you get to having
identical returns because you're not getting any amplifying effect of the
money allowed to grow, the larger the growth target the longer in time
(generally) you have to wait before you can pull the trigger and like musical
chairs find yourself losing out because you waited to long.

An interesting diversion is to run different investment strategies against the
historical record from the bubble to see which left you with more money. If we
are in another bubble that could be useful information.

Or not. See other posts on the randomness of it all.

[1]
[https://docs.google.com/spreadsheet/ccc?key=0Atwe7dq6iPQHdGx...](https://docs.google.com/spreadsheet/ccc?key=0Atwe7dq6iPQHdGxSWTN6bnlpQkoyS1llekZNVURWVVE&usp=sharing)

~~~
deelowe
Wow. Thanks.

------
Homunculiheaded
From the Investopedia: "In the year 1999, there were 457 IPOs, most of which
were internet and technology related. Of those 457 IPOs, 117 doubled in price
on the first day of trading."[0]

We're not seeing this type of investor behavior at all right now (please
correct me if I'm wrong). I personally am not really sure that FB and Twitter
will ever find a way to make huge profits and become sustainable large
businesses but looking at the market it's clear that investors share this
uncertainty.

And since anecdote is so popular when discussing bubbles, I still don't see
"normal" people talking about how they're going to "make it rich!". I had
people in 2007 telling me I was missing huge opportunities to get rich in not
purchasing a home, house flipping shows were all over tv. In the late 90s I
knew HS students that were trading stocks on the school library's computers
during lunch.

Don't get me wrong, especially when everyone I know in the non-tech sector is
still struggling, I have anxieties that the party won't last. However looking
around I see nowhere near the insanity I remember in 1999 and 2007.

[0.][http://www.investopedia.com/features/crashes/crashes8.asp](http://www.investopedia.com/features/crashes/crashes8.asp)

~~~
grey-area
_I personally am not really sure that FB and Twitter will ever find a way to
make huge profits and become sustainable large businesses but looking at the
market it 's clear that investors share this uncertainty._

That's not at all clear to me, could you share your reasoning? There are many
large SV companies with very high valuations and negative or very low profits
in comparison. Companies like Twitter and FB look to me to have a lot of
future profit baked into their current valuation - around 100 years worth in
the case of FB, and infinite years in the case of Twitter or many other tech
stars like snapchat - that's not very realistic and is pretty frothy. Ordinary
people are taking a leap of faith and investing in these companies without
solid profits to back it up. I'm not persuaded we're in a very rational market
right now, given the doldrums the US economy is experiencing, which is a sharp
contrast to the new stock market highs we have recently seen.

------
WasimBhai
Sitting here in Pakistan, this scares me. I remember back at the start of
2000s' when the bubble had busted, and Pakistani software industry which is
largely doing work that has been out-sourced, going more or less dead. Really
talented engineers were unable to find jobs, and the whole CS boom which had
reached here too, died down. Now there are so many jobs, and not enough kids
which is making universities induct even more students.

In between all this, this talk of bubble busting literally freaks me out. When
God forbid it happens, it will leave deeper scars than the 2000 one with many
a stable careers coming to a sudden halt, and along with them their families.

~~~
dclusin
I was a teenager during the the dot-com bust in the Silicon Valley (Palo
Alto/Stanford to be precise). Even PhD's and extremely driven & accomplished
people could not find jobs. They simply weren't there. In the event that there
is a bubble in start up investing I don't think that it will be as bad as it
was when and if it deflates. The primary reason I think this is because the
amount of demand for skilled software/hardware workers has grown to such huge
& global proportions that it is not possible for VC's to affect it
meaningfully anymore. Although I guess you could have said the same thing
about housing in the U.S. back in the 2000s.

~~~
jurassic
I know things were terrible for everyone during the dot bomb era, but just
wanted to say that PhD holders often have a hard time finding the right
position even in good times. They are highly specialized and believe they
should command a high salary, but employers are resistant to paying a large
premium unless their particular expertise serves their business need. Since
PhD theses are by their nature esoteric, this leads to an unfortunate mismatch
in expectations.

~~~
dclusin
They were taking unskilled jobs or jobs they were extremely overqualified for
just to make ends meet is what I was trying to get across. Several of my
friends parents had to do this until things got better.

------
debt
Meh. Everything is moving online. Hype or not, that's what's going on.
Snapchat? Well, kids don't watch TV anymore, but those TV ad dollars still
exist. There's millions of kids and billions of dollars. Where is that ad
money going to go? It's going to go into ad platforms provided by Facebook and
Snapchat and Youtube and on and on and away from TBS and CBS and AMC, etc.

Across the board, the money is moving laterally from one offline component of
some infrastructure to it's online-only equivalent. It's happening now, and
it's happening fast.

The hype is real.

~~~
Ologn
> Meh. Everything is moving online.

Quote - "Almost everything is moving on-line."

Year - 1999

Author - Jay Conrad Levinson

Book name - Mastering Guerrilla Marketing: 100 Profit-producing Insights You
Can Take to the Bank

Page # of quote - page 186

Publisher - Houghton Mifflin Harcourt

Google Books working(?) link -
[http://books.google.com/books?id=8f69VffjDJMC&lpg=PA186&dq=%...](http://books.google.com/books?id=8f69VffjDJMC&lpg=PA186&dq=%22everything%20is%20moving%20on-
line%22&pg=PA186#v=onepage&q=%22everything%20is%20moving%20on-line%22&f=false)

I heard the same thing the last time around. Before the 2000 crash. Before the
2008 crash. It's different though this time, right?

~~~
johnrob
Being early is the same as being wrong, with one exception: if you're early it
means the concept will indeed be correct later on. I think "Everything is
moving online" was early, not wrong.

------
icn2
It looks not like 1999 at all. In 1999 one can easily find a programming job
only knowing html. Today It seems that tons of graduates knowing very well Big
O complexities, all kinds of cs fundamental algorithms still need to compete
for a job.

~~~
logn
Now you need to know html and 6-weeks worth of programming basics. The main
reason experienced people compete so hard for jobs is that companies won't
hire remotely and people don't want to move, and because founders and VCs
don't pay good salaries. Still, finding a good job is fairly easy if you're
talented.

~~~
bonemachine
But the point is that in '99 it was also fairly easy even if you were
manifestly _untalented_.

~~~
varelse
I would submit that most of the social media startups consist primarily of the
manifestly untalented.

The cream of that crop graduates to writing buggy and crashy IOS and Android
apps.

The very elite (ya know the ones that passed calculus and linear algebra) of
that esteemed crowd sits through a few Coursera and/or Udacity courses and
proclaim themselves data scientists.

All of this has happened before and will happen again.

PS Absolutely loving what this is doing to total compensation though.

------
nswanberg
It's sad that the only numbers appearing in this article have dollar signs
attached to them and that the quotes are all about people's feelings.

This one has some numbers without dollar signs (and of course some with):
[http://gigaom.com/2013/10/18/how-has-vc-funding-changed-
sinc...](http://gigaom.com/2013/10/18/how-has-vc-funding-changed-
since-1995-charts/)

~~~
pedalpete
Great link, the thing is, VC dollars or number of VC deals is no longer the
predictor it was in 1999. So many businesses can build and last longer without
VC funding that by the time these businesses are getting investments from VCs,
they are already much further along the curve.

So there likely won't be a VC bust like before, we need to start using a
different metric, unless all we are concerned about is the health of VC.

~~~
001sky
VCs make $billion dollar companies. Billion dollar companies make bubbles.
While I sort of agree with you that startups don't need a billion in capital,
thats sort of beside the point. Bubbles need billions in capital, and bubbles
need VCs. Or, at least thats another way to look at it. I dont think a single
one of the ~40 billion dollar exits in the past decade has not had VC to goose
the valuation prior to it going public (if not for absolute capital needs).

~~~
pedalpete
I have to disagree with your 'Billion dollar companies make bubbles'
assesment. Multi-billion dollar markets make bubbles, and the size of the
start-up market is probably as large if not larger in dollars than it was in
1999, now it is just made of 10-100x more companies, so the total valuation of
the tech market could be the same as 1999, but that doesn't absolutely have to
be funded by VCs.

1000 smaller investors loosing their small investments has the same effect as
1 VC loosing their large investment, doesn't it?

Think about the housing crisis, that was a bubble where hundreds of thousands
of people over-financed by a small amount, and then couldn't pay back the
creditors.

~~~
001sky
Bubble's are valuation errors in order of magnitude off. I don't think 10's
valued at 100s could make a bubble, or at least one that is dangerous. Unless
you are talking real estate. The reason is that smaller companies don't float
enough paper to be broadly owned/distributed throughout the system. The
characteristics of a bubble typicaly indicate feedback loops operating at
scale. A portfolio of smaller companies is a less dangerous situation. This is
why, if we look at a bubble in "angel" deals, its not the same thing as the
2000 era bubble that was in public equities.

------
at-fates-hands
Let's make a parallel here.

People go back and forth about global warming. . errrr. . climate change. Does
it exist, doesn't it? My view is even if it doesn't exist, shouldn't we act
like it is, just in case, so that if it really does exist, we can say we
already mitigated the damage?

You should really act the same way with these bubble stories. Is there a
bubble? Maybe there is, maybe there isn't. Either way, shouldn't you just plan
like there's a bubble to protect yourself?

Snapchat is a great example. Although I can understand Snapchat's co-founder's
altruistic view of life, in these time, you gotta take the money and get out
while you can. If there is indeed a bubble, those billions will evaporate in a
few minutes, never to come back again. At just think what other really cool
stuff you could build several BILLION dollars. . . .

~~~
dmix
I prefer acting on intelligence (data) not speculation, especially when it
comes to how I spend my life.

------
rmason
The media can't help themselves in writing another bubble story. They keep
looking and looking yet they missed all the signs of the 1999 bubble
completely.

Is it a bit frothy? Yes, but the correction that is coming will not be nearly
as severe. Those bulked up startups will crash if cut off from future funding.

But a larger majority will just hunker down and bootstrap their way through
it. That wasn't an option for most in 1999.

------
coldtea
Here's a link to a text I think it's worth it (and relevant).

It's a funny account of some 2005 hazy "Open Media" event, written by a
photojournalist called Jim Lowne and titled "Party like it's 1999".

Sadly the post is not up on his website anymore, lost to some restructure:

[http://pastebin.com/4qvDX9hd](http://pastebin.com/4qvDX9hd)

------
logn
In the dot-com bust, one big problem was that with IPOs average folks were
dumping their life savings in companies with no solid business and they got
burned. Right now, that's not happening much. Crowd-funding might change that
but hopefully it doesn't cause another bubble burst.

------
somberi
I am older than your average HN reader and had invested during the the 90s
bubble, but luckily did not lose any money. The choir of the press sounds very
similar now as it did before. I kept it aside and asked myself if _I_ thought
these companies were as valuable as they tout to be. I did not and went all in
and sold. Asking myself the same question, I come to the same answer now.

I asked my Dad (70 years old) if he clicked on any advert on Facebook or
Google and he had not. Even car sharing companies that make about 6$ a booking
need to do a lot of bookings before they turn as much profit as, say IBM.

I am selling.

------
brosco45
And soon, 2000/2001 again. People never learn.

~~~
bdcravens
Or maybe they do. Do you think the millionaires made in 1998 and 1999 were
freaked out in 2000? (Assuming they just deposited the money) What you can
learn from a bubble: it comes, it bursts, and in the meanwhile, you can
generate enough wealth that it's not an issue. Arguments about the effect of
bubbles is a macroeconomic debate; decision to go for a big paycheck is a
microeconomic one and only tangential.

~~~
saool
money changing hands != generating wealth

------
mtrimpe
It seems like this is not a bubble but a storm surge, with the 'wind' being
the massive amount of liquidity looking for a positive return on investment.

It's disproportionately being moved into IT because it's one of the few
markets that still seems to have the ability to generate a positive ROI,
although that's probably been priced in already by now.

That would mean that when the market recovers and 'regular' investments like
housing, construction, manufacturing, finance etc. start generating returns
again the current craze will just die down rather than pop like a bubble.

It seems to me like the difference between hoarding tulip-bulbs during the
mania to get rich vs. hoarding them during World War II to have a source of
food as a last resort.

~~~
GuiA
> That would mean that when the market recovers and 'regular' investments like
> housing, construction, manufacturing, finance etc. start generating returns
> again

That's a bold assumption in itself already.

~~~
toomuchtodo
Logged in just to comment on this as well. Housing and construction? We
already have way too many homes people can no longer afford either do to
foreclosure or income limitations. Manufacturing? Have you seen where real
wages are at? Maybe business capex, but there isn't a whole lot of disposable
income at the moment if you have a family and make under $100K/year.

And finance. Oh finance. Like we need Yet Another Financial Product To Fuck
Us.

Returns? Its hard to generate returns when the majority of your population is
shifting towards retirement (in the US) and the wages of your up and coming
audience/consumers (18-45) are anemic at best (if there at all).

~~~
mtrimpe
It's difficult to predict what the future bread-and-butter markets will be.

Let's say that IT will account for 20% of a post-recovery economy. In that
case replace my enumeration of a few markets by 'whatever makes up the other
80% of the market.'

------
morgante
Articles like this are proof that there isn't a bubble.

The defining characteristic of bubbles is irrational exuberance—everyone
feeling that the sky is the limit.

Instead, we have an environment where articles like this come out on a regular
basis and I probably hear "when this bubble pops" daily. Everyone is afraid
that we're in a bubble. So we're probably not in one.

Be greedy when others are cautious. Since the pundits are cautious, it's
probably a good time to invest.

------
andyl
Wonderful marketing hyperbole.

------
VladRussian2
well, the bust will as usually happen when everybody finally start to believe
and act like there isn't an end to the ride. We seems to be getting there,
though not just yet.

Huge up-and-coming developing regions - pretty much anything outside of US and
Europe - will vacuum anything that tech can produce. The correction of tech
industry from Western world to the rest of the world may be a little bit
uncomfortable for those who miss it, i mean it is time to learn Chinese and
Spanish this time not Java :)

------
auggierose
I don't even need to read the article. Obviously, they have a point. And
obviously, most of the comments here are along the line "THIS TIME IT'S
DIFFERENT!". Lol.

------
sgloutnikov
"YOU’VE REACHED THE LIMIT OF 10 FREE ARTICLES A MONTH Subscribe to continue
reading"

Come on NYT...

~~~
eob
You want them to work for you for free?

------
mkr-hn
The next bubble will slip in slowly under the radar to avoid all this
introspection. It won't look like a bubble to enough people until it pops.

------
dpcheng2003
Nope.

------
kaeluka
"YOU’VE REACHED THE LIMIT OF 10 FREE ARTICLES A MONTH."

~~~
psbp
Google the title.

