Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (8157)	10/12/1999 2:01:00 AM
From: tekboy	Read Replies (1) \| Respond to of 54805

<<What did he say?>> One of the fun things about this investing obsession is that it has prompted me to take an interest in broader economic questions that I was always too lazy or stupid to understand. I'm not there yet (wife, who is good at this stuff, still constantly teases me while patiently explaining things), but I'm learning. Anyway, I think what he's saying here is that we are currently witnessing a major shift in how the capital markets work. The key section for me was this: "Traditionally, in the public markets, valuation has been a quantitative discipline focused on financial assets and earnings performance, and capital has been supplied based on forecast returns from established operations. By contrast, in the private markets, valuation has been a qualitative discipline focused on business ideas and models, and capital has been supplied based on potential returns from as-yet-nonexistent operations. An IPO was the rite of passage from private to public. "Today the two models are converging. The public markets are adopting the valuation mechanisms of the venture community, most dramatically in the Internet sector, and the venture community is turning to the public market's much larger sources of capital to supply the massive infusions needed to scale up rapidly into a global contender. That is, companies are going public earlier in their market development life cycle to capitalize on first-mover advantage, using the huge inflow of capital to accelerate the build-out of an infrastructure or a brand. "The resulting shift in the risk/reward equation is forcing the public and private investment communities to wrestle with each other's conceptual model, not altogether happily. That's why we see financial analysts and business press continually predicting the Internet bubble will burst. They are clinging to the notion that the public markets must represent a relatively low-return domain because they are relatively low risk. Meanwhile, the venture community is struggling to accept the idea that the bulk of a company's increase in value might not happen until years, or even a decade, after the IPO, so the winning strategy is to hold, rather than cash out, upon liquidity. But the venture community is not well structured to act on this insight, nor is it sure it wants to." In other words, instead of a sharp division between risky start-ups funded privately and stable mature companies funded through public capital markets, we are seeing wierd hybrids popping up all over the place. This is making the world more exciting, but also more confusing, and puts a premium on predicting properly and getting in early. Or something like that... <BG> Maybe somebody who knows more than I do about finance should comment instead...<sigh> tekboy@idowars,dammit,notfinance.com