In the biggest understatement of his life, Warren Buffett has cut to the heart of the modern tech bubble. It's not about limitless profits, or the hope that internet companies will change mankind, but rather:
"The ability to monetize shareholder ignorance has probably never been exceeded," said Buffett."It's as extreme as anything that happened in the 1920s. It's precautionary to us."
As insiders at most internet companies routinely sell stock to their all-to-eager public shareholders, at a rate per month greater than their companies produce in revenue per year, I think he's on to something.
Amazon insiders have sold around 4 billion shares to date, yet we al know Amazon has never earned a dime. Jeff Bezos just bought the entire top floor of an exclusive apartment building in manhattan overlooking central park. Naveen Jain of Infospace has sold roughly 500 million dollars to the "rational" public, yet his company has earned a profit of only a few tens of thousands of dollars over the last 3 years.
The list goes on and on, and the prices of silicon valley real estate go up and up, with the median home now going for more than $600,000 in the palo alto area. (That will get you 700 square feet, but you'll probably be outbid by another .com exec who just cashed in for 30 or 40 million a week previously)
It is the greatest transfer of wealth in all of human history that didn't involve military conquest.
One thing it is NOT, is a rational market. |
