No. of Recommendations: 6
I wasn’t around for the 1999-2000 internet bubble. But I have studied it a little bit. There are some similarities. Such as who cares about valuations? Or buying up promising young companies with no earnings for promise of future glory. But I think the big thing that is different is magnitude, which of course would mean a bubble and not something more rational. I think we are much more rational.

Take the case study of Yahoo! Here is an article from early 99.

Yahoo was in fact growing revenues and even earnings at an amazing clip. Growing revenues by multiples. So the stock went up and up. Difficult to get FE/V ratios going back that far. But for context Yahoo was trading at $150 or so when this article was written. It peaked at around $500 right at the end of the year. It’s market cap closed at its highest level on January 3, 2000 at $125B. It’s revenue for the full year of 2000 was just over $1B. So at its peak if one had correctly guessed what Yahoos forward 1 year P/S ratio was it would have been 125. PS of 125! It would have been far higher on a TTM look back for them at that time. Many other of the bubble stocks were in the hundreds too. Doesn’t help that they got Googled a few years later.

That’s what an irrational bubble looks like. We are multiples less than that. Not going to speculate on what to expect from multiples going forward and what that ultimately does to returns. Until it gets to an utterly irrational level, I’m sticking to quality companies that have great growth and an intact company thesis. Though there may be times when I prune the growth if it looks to be getting ahead of the story.

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