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| Sat, 9th May 2020 13:56:00 |
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Is The Tesla Bubble About To Burst? |
I started trading stocks in the late 90s, it was an exciting time; the internet was coming of age, and investors, or rather day traders, were extremely excited about the riches of this new digital era. I was in my early 20s, and I had very limited investing knowledge at the time, nonetheless, I opened an online trading account and used half my college tuition money to speculate on internet stocks. A year later, my capital had multiplied by twenty folds! And notions of being a financial genius floated within my head. My remarkable success attracted the attention of many friends, even family friends, and at the ripe old age of 21, I was dispensing financial advice (mostly stock tips) to people double and triple my age. To those older than me, I became a sort of Sherpa to a new world where finance and technology intertwined into a new and exciting reality.
Trading tech stocks during the technology boom was an intoxicating experience. Popular names such as Netscape, AOL, Yahoo, JDS Uniphase, Cisco Systems, Juniper Networks, Ebay, Qualcomm and Amazon among others skyrocketed day after day to unbelievable highs. It seemed as if all one had to do to become rich was to open a brokerage account, and buy whatever tech stock was in vogue. Investment legends such as Warren Buffett were written off as out of touch for they did not comprehend the peculiarities of this new paradigm, where valuations, profitability, or even revenues were of little interest. Traditional valuation metrics were replaced by new measures such as eye balls and available bandwidth. In July 2000, Vinod Khosla at Kleiner Perkins Caufield & Byers, explained it so:
A lot of people look at the traditional measures for the economy and start scratching their heads about this long period of growth we're enjoying. That’s because the traditional measures are industrial measures; they miss what’s really going on. The old econometric models take into account the cost of oil, but they totally ignore the cost of bandwidth. The old yardsticks don't make sense any-more because what’s going on today is a fundamental change in the structure of our economy.
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