Tech Valuations - Sometimes You To Wonder....

I think part of it is that many of those companies are profit driven instead of long-term growth driven. If short-term growth doesn't translate into the profit they'd hoped for then the investors are on to the next shiny object. In a way, I think many are looking to strike the business lottery.

I think Jim Collins was on to something when he researched and wrote Good to Great. Many of the companies in the book had slow growth until they changed something within their operations. Then the companies grew moderately. Some in the book aren't the powerhouses they were when he wrote the book, but most are still doing well.

The disconnect is that "main street" is populated with "Joe the Plummers" who are working hard on the ground and unable to stay abreast with what Wall Street is doing. Wall Street folks are considered the high flyers. They live, eat, and breathe what the market is doing so they may profit well from it. I mean, I would if I had the capital to invest in such activities. For a while, I chased solar energy stocks. I made over 200% of my initial investment. The problem, however, is that my initial investment was about $150, so it didn't translate to much of a gain monetarily.

"Ever notice how companies that have and had moderated growth year in and year out have stayed in business for decades and provided excellent livings for all those involved?"

There is a reason for that. As a CFO I reported to at a 100 year old fortune 200 would say: "Anyone can make hay while the sun shines. It's what you do when times are bad that makes the difference. There is a reason this company is more than 100 years old."

That company is a dividend aristocrat and has been for many, many years. And, while I once sneered at their slow growth and comparative conservancy, my stock holdings in that firm have doubled in value about every seven years and I've received dividends all along, which I've invested in other stocks.

As one gets older they start to realize this kind of wisdom. It's also why I'm no fan of unicorns or other high flying - for the moment - tech offerings even though I'm surrounded by them in the SF Bay Area where I live.

1. Just like the financial crisis.....the blame list is too long! And yes, we finance professionals are part of that list. After all, we "rationalized" the valuation and it's methodology.

2. If "unicorns" don't do hyper growth, someone else will eat their lunch.

3. I caution everyone about conflating "growth" and "valuation". Although one is a factor of the other.

4. Comparing 100 year old companies and tech companies (as a generalization) is not really apropos. The business and financial motivations are different. Who is to say that Uber (as an example) despite their legal (employee/1099) problem wont live to be a 100?

5. I look at it this way....these tech companies (as an example) can "moderately" grow but NOT doing hyper growth would severely constrain it's growth. WIthout funding, they cannot do the hyper growth. It is a circular justification....meanwhile iit's valuation is skyrocketing.

I present Amazon and UBER (even with their legal troubles) as perfect examples of this.