|What the bubble got right
||29 Sep 04
Enjoy reading the latest essay by Paul Graham and you will understand why I
continue to fight against wearing ties :-).
(Source: Paul Graham) I had a front row seat for the Internet Bubble,
because I worked at Yahoo during 1998 and 1999. One day, when the stock was
trading around $200, I sat down and calculated what I thought the price
should be. The answer I got was $12. I went to the next cubicle and told my
friend Trevor. "Twelve!" he said. He tried to sound indignant,
but he didn’t quite manage it. He knew as well as I did that our
valuation was crazy.
Yahoo was a special case. It was not just our price to earnings ratio that
was bogus. Half our earnings were too. Not in the Enron way, of course. The
finance guys seemed scrupulous about reporting earnings. What made our
earnings bogus was that Yahoo was, in effect, the center of a pyramid
scheme. Investors looked at Yahoo’s earnings and said to themselves,
here is proof that Internet companies can make money. So they invested in
new startups that promised to be the next Yahoo. And as soon as these
startups got the money, what did they do with it? Buy millions of dollars
worth of advertising on Yahoo to promote their brand. Result: a capital
investment in a startup this quarter shows up as Yahoo earnings next
quarter— stimulating another round of investments in startups.
I especially like this part: Nerds don’t just happen to dress
informally. They do it too consistently. Consciously or not, they dress
informally as a prophylactic measure against stupidity.