The Incredible Sinking Bubble
bhorowitz.com
bhorowitz.com
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.
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.
The side point that tech stocks are suffering a general malaise because of the fear however should not be missed either. When Sun Micro was young (I started 2 weeks after it went public) I recall being annoyed that IBM (then the dominant 'computer' player) would have a bad quarter and people would sell Sun stock (and it would sink in price). While the whole time Sun was doing great business, growing really quickly, and taking money away from IBM left and right. My financial adviser and I discussed it and I got to learn about what it meant to be part of the 'data processing sector' even if you were the up and coming dominant force in that sector.
I agree with Ben that the pendulum is pretty hard over in the 'fear' side, hints of 'bubble' and people flee tech stocks. But solid companies get painted with the same brush just because they are part of the 'tech sector'.
One of the things that bolsters Ben's point is that there have not been a lot of individual investors trying to pile on to the IPOs. This is a good sign that they are standing on the sidelines.
If you're an investor, you might be watching the tech sector to see when the swing back to the 'greed' side starts and try to jump on and ride it over.
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.
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.