So, the Internet has repealed history? You are certainly reflecting the mood of the market. I don't buy it, myself.
well, when was PE invented? decades ago when innovation was slow, when rise and fall of companies were predictable
No decades ago, investors wanted their money out of a stock investment and looked at dividend yield. That's clearly ancient history.
This century has invented electricity, automobiles, radio, nuclear power, television, electronics, computers, pcs, and now the internet. All these were world-transformative technologies, and people got very excited over them at the time. None of them repealed history or the business cycle. Give me leave to doubt that the Internet will either.
ps, I'm not sure if I am the first one to compare Internet to the bomb, if so, please credit me from now on).
You're welcome to it from me. Come to think of it, a very apt analogy considering what most of the e-tailers are going to be doing over the next year or two.
another way to understand high PE is to think of the lifespan of a company being shorten. in the traditional case, you have a company that possibly last for 50 years with average PE of 20 for a total PE of 1000. now if the lifespan of this company is shorten to 5, shouldn't the PE be 200 if in each case, the company produces the same amount of goods (and profits)?
So you're saying that the company won't make a dime for five years and it will probably die at the end of the five years but it should get a very high valuation right now ... exactly why?
i think the market is exactly right by rewarding hi tech companies with high PE because the innovations they're producing are unprecedented.
The market works better when it captalizes earnings, not "innovations".
Don't get me wrong. The Internet is a world-tranforming technology and five of the Internet companies will be pillars of 21st century capitalism (Don't ask me which ones; I don't even know if they exist yet). And just as Levi Strauss made money in the California gold rush by selling overalls to the prospectors, BEA will make money selling middleware infrastructure to the Internet companies.
However, most of the prospectors went bust and most the Internet companies will blow up (credit to you for the analogy) in the next couple of years. A business model that says "Get free capital from VCs, spend a wad on advertising, and sell at a loss to attract customers" is not really sustainable.
May I recommend Devil Take the Hindmost: A History of Financial Speculation, by Edward Chancellor? It really helps to get some perspective on the current market. |
