If they're right, it means the The New York Times has successfully predicted eight of the last two tech bubbles.
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.
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...
If you honestly think the current Silicon Valley looks anything like 1999, you don't understand what happened in 1999.
When you chew gum, you don't blow the exact same bubble every time, do you? Some are bigger, some are smaller. Some pop sooner, some last longer. Some make more of a mess when they pop, some make less of a mess when they pop.
I participated in the tail end of the first bubble, and while there are absolutely differences, some meaningful, I think it takes some effort to ignore the many meaningful similarities.
Let's get serious here. SnapChat refusing $3 billion, while ridiculous, does not at all compare to the masses of VC cash going to thousands of companies with no idea about how they were going to make money at all.
If you must compare them, compare them by scale. Today, we have a small handful of companies getting a lot of attention because of questionable financial dealings (whether it be IPO or the refusal of cash).
In the '90s, the differences were much larger (presumption that putting "Internet" in front of any business idea would automatically mean IPO and great riches), and the number of businesses involved was much larger.
That is why there is no bubble. When there is an actual bubble, I'll be more than happy to call it out.
Some are bigger, some are smaller.
To qualify as a "bubble," doesn't it have to involve a large segment of the industry, not just a handful of companies?
So long as money remains this cheap, the stock market will keep expanding until there's a necessary crash. Money is chasing risk, inflating assets accordingly.
The last few quarters have delivered the first indications, in my opinion, of a repeat of the excesses of the 1990s. The higher this stock market goes without fundamentals directly supporting it, the more frothy parts of the tech sector are likely to get.
Over 90% of the gains in the broad stock market the last two years have been from pure multiple expansion. Another year of this and it will be a full blown bubble across the board, and by that point what will Snapchat (or the next craze) be worth? $8 billion? $20 billion? The only thing left at that point will be a massive implosion on the other side.
Where are stocks like LinkedIn going from here? $50 billion (50 times sales)? Is Twitter worth $40 billion (70 times sales)? Is Tesla worth $30 billion? Is Netflix worth $35 billion? Is Amazon worth more than Walmart? Should Google have a 40 pe ratio, while growing earnings at 10-12%?
I say the party is nearly over, there's no upside left looking out several years that doesn't require a bubble.