What The Bubble Got Right 340
dtolton writes "Paul Graham has written an article entitled What the Bubble Got Right. In recent years the roaring tech bubble has become a byword, yet Paul does an excellent job of articulating what it got right."
bubble? (Score:3, Funny)
Re:bubble? (Score:5, Informative)
Re:bubble? (Score:3, Interesting)
"Bubble" usually refers to a time when the prices or valuations of things are ridiculously, absurdly high way out of proportion to their true value. It's become a pyramid scheme: people are often buying stuff solely to resell it at a higher price, and not to actuallly *use* the stuff. Saying that a market is on a bubble also usually implies that the bubble's about to pop, bringing down everyone with it.
For example, saying that there's a housing market bubble implies that
Re:bubble? (Score:4, Insightful)
Actually the term has been used for a lot longer than that. Charles MacKay talks about the "South Seas Bubble" in his book Extraordinary Popular Delusions And The Madness Of Crowds [litrix.com] way back in 1841.
Re:bubble? (Score:2)
Full Text (Score:5, Informative)
(This essay is adapted from an invited talk at ICFP 2004.)
I had a front row seat for the Internet Bubble, because I worked at Yahoo during 1998 and 1999. One day, when the stock was trading around $200, I sat down and calculated what I thought the price should be. The answer I got was $12. I went to the next cubicle and told my friend Trevor. "Twelve!" he said. He tried to sound indignant, but he didn't quite manage it. He knew as well as I did that our valuation was crazy.
Yahoo was a special case. It was not just our price to earnings ratio that was bogus. Half our earnings were too. Not in the Enron way, of course. The finance guys seemed scrupulous about reporting earnings. What made our earnings bogus was that Yahoo was, in effect, the center of a pyramid scheme. Investors looked at Yahoo's earnings and said to themselves, here is proof that Internet companies can make money. So they invested in new startups that promised to be the next Yahoo. And as soon as these startups got the money, what did they do with it? Buy millions of dollars worth of advertising on Yahoo to promote their brand. Result: a capital investment in a startup this quarter shows up as Yahoo earnings next quarter-- stimulating another round of investments in startups.
As in a pyramid scheme, what seemed to be the returns of this system were simply the latest round of investments in it. What made it not a pyramid scheme was that it was unintentional. At least, I think it was. The venture capital business is pretty incestuous, and there were presumably people in a position, if not to create this situation, to realize what was happening and to milk it.
A year later the game was up. Starting in January 2000, Yahoo's stock price began to crash, ultimately losing 95% of its value.
Notice, though, that even with all the fat trimmed off its market cap, Yahoo was still worth a lot. Even at the morning-after valuations of March and April 2001, the people at Yahoo had managed to create a company worth about $8 billion in just six years.
The fact is, despite all the nonsense we heard during the Bubble about the "new economy," there was a core of truth. You need that to get a really big bubble: you need to have something solid at the center, so that even smart people are sucked in. (Isaac Newton and Jonathan Swift both lost money in the South Sea Bubble of 1720.)
Now the pendulum has swung the other way. Now anything that became fashionable during the Bubble is ipso facto unfashionable. But that's a mistake-- an even bigger mistake than believing what everyone was saying in 1999. Over the long term, what the Bubble got right will be more important than what it got wrong.
1. Retail VC
After the excesses of the Bubble, it's now considered dubious to take companies public before they have earnings. But there is nothing intrinsically wrong with that idea. Taking a company public at an early stage is simply retail VC: instead of going to venture capital firms for the last round of funding, you go to the public markets.
By the end of the Bubble, companies going public with no earnings were being derided as "concept stocks," as if it were inherently stupid to invest in them. But investing in concepts isn't stupid; it's what VCs do, and the best of them are far from stupid.
The stock of a company that doesn't yet have earnings is worth something. It may take a while for the market to learn how to value such companies, just as it had to learn to value common stocks in the early 20th century. But markets are good at solving that kind of problem. I wouldn't be surprised if the market ultimately did a better job than VCs do now.
Going public early will not be the right plan for every company. And it can of course be disruptive-- by distracting the management, or by making the early employees suddenly rich. But just as the market will learn how to value startups, startups will learn how to minimize the damage of going public.
2. The Internet
Re:Full Text (Score:4, Interesting)
Re:Full Text (Score:3, Funny)
I cant help thinking that it is in the same league as that of women wanting to marry death row convicts :=
[link] [talkleft.com]Morbid fascination ??
What did the bubble get right??? (Score:5, Funny)
But seriously - 20 something billionaire yuppies sans business plan?
The only thing the bubble got right (Score:3, Funny)
No kidding. (Score:4, Insightful)
Wish I had a job before/during the bubble. (Score:5, Insightful)
Re:Wish I had a job before/during the bubble. (Score:5, Funny)
Re:Wish I had a job before/during the bubble. (Score:5, Funny)
Re:Wish I had a job before/during the bubble. (Score:3, Funny)
Re:Wish I had a job before/during the bubble. (Score:4, Funny)
Re:Wish I had a job before/during the bubble. (Score:5, Informative)
I joined the industry in June, 2001, right after I graduated college. I started with an okay salary, a little less than you mentioned, but still good. Since then all my company's yearly salary increases have been around 3%. Three percent barely makes a difference. But for years before 2001, the average increase was around 10%, and good people got 15%! Plus for equity compensation, people who joined in 1998 and were smart made hundreds of thousands on their stock options. But my options are still under water.
So from my perspective, getting a job "before the bubble burst" isn't that amazing. I'm definitely better off than I would be if I were 1 year younger, but the real lucky people are the ones who were in the industry before the bubble.
Re:Wish I had a job before/during the bubble. (Score:3, Interesting)
Quit trying to follow the money, and be happy (Score:5, Insightful)
I have no patience with people who decided to become software engineers (or doctors or lawyers or golf ball polishers) because they thought/were told/read somewhere/had a divine revelation that "that's where the money is".
People who decide to go after work that they don't enjoy in order to make more money than they think they would at something that they enjoyed, are doomed to be miserable. They will be be miserable IN their job, they will be miserable AT their job, and they will make the people around them miserable, too.
Having a vendor certification/college degree/union card doesn't mean you will be happy at a job, and it doesn't mean you will be successful at one, either.
Find something you really enjoy doing, and then find someone willing to pay you to do it, and you will be happy.
And if you're happy, you won't need to bitch about how terrible the job market is, or how your "investment" in your certification/college degree/union card "is not paying off". A job is not something you can buy from a diploma store, or that you have a right to, having spent some requisite amount of money at one.
I've interviewed a lot of people for a lot of jobs, and I'll tell you right now: I don't hire or recommend hiring people if they don't enjoy doing what it is they are going to be doing on a daily basis as part of their job, and do it well. Other things matter too, but that's the A-number-one gating factor for me giving you a thumbs up.
For a software engineering job, if you weren't one of the people who hung out at the computer lab simply because you enjoyed being around the machines and other people who also enjoyed that, then I don't care that you received straight A's for the Visual C++ work you turned in from your home PC without ever interacting with another human being who was interested in the same type of thing, before you went to the frat party and drank yourself stupid.
Work -- and life -- is not something you skate by on, with the minimum acceptable level of effort, so you can do "something you actually like" after it's over.
You may or may not be a skater -- if you aren't, I'm sorry that you're so bad at selling yourself to prosective employers, or that you love doing something you aren't very good at; either figure out a way to address your shortcomings, or pick something *else* you like to do, and do that instead.
But if you are one of those people who picked their career based on a "top salaries" list, and then skated through college on the minimum possible effort to maintain a nice looking GPA, looking for the high paying job at the end of the rainbow, the world is probably better off if you are stuck asking those of us who didn't "Would you like fries with that?".
-- Terry
Re:Quit trying to follow the money, and be happy (Score:3, Insightful)
As far as job performance goes, the motivation for doing a good job is irrelevant. Whether you're out to make money and nothing else, or work at the job because you happen to like it, excellent performance is what any sane company looks for. Those who can't perform are fired, period.
When *I* was hiring I took people who
Re:Quit trying to follow the money, and be happy (Score:4, Interesting)
There ARE jobs like that, most retail is like that, as one example. You help people find what they need, sell it to them, put stuff on shelves, maybe oversee some other people doing that, rinse and repeat. You never really need to learn anything new unless you want to move up the corperate ladder and even then you often don't. Being a cashier today doesn't require much different skills than it did 50 years ago.
Not the case with computers. Being a prgrammer today requires vastly different skills than one 10 years ago. 10 years ago it was all about DOS apps in a single user envrionment, with just some being Windows or MacOS. Now it's all about multi-user, multi-tasking apps and cross platform is continuing to get more and more important. Languages have changed too, I mean look at the rise of Java and PERL.
Also all the real knowledge and skills you need are robust ones. YOu need to understand how a computer works, how it thinks and how languages relate to that (if you're a programmer) so you can quickly learn and adapt to neaw languages, OSes and environments. Not the case with a cashier job, you can just memorize all the things you need to know and have no deeper understanding.
Well way too many
Those people, I don't much feel sorry for if they can't find jobs, they really shouldn't have gone in to tech.
When I got my current job (computer support), I was kind supprised. I mean I was qualified, no question, but not ideally. I figured with all the doom and gloom on
They said that most couldn't answer questions to match their credentials (CCNA's who couldn't correclty sum up the differences between a switch and a hub) and most appeared to just want any job they could get where I seemd to actually want to work for THEM (which I did, they specificaly interested me).
So I think the grandparent was valid, people that are interested and motivated in a higher level field will almost always be better than those that just are chasing dollar signs.
Everyone can't do what they love (Score:3, Insightful)
There's a distribution of jobs that society needs done. There's a distribution of jobs that people want to do. These distributions are not identical. If they were, half of society would be movie stars, a third would be CEOs, etc.
Certainly you'll be more successful if you d
Re:Quit trying to follow the money, and be happy (Score:3, Funny)
Although its true, its also true that people who enjoy their work do the best work.
I like computers. For good or ill, I spend probably 60+ hours in front of one machine or another doing activities running from homework to coding.
I enjoy coding, but I don't enjoy it enough to do it for years and years. I'm finding that I far prefer problem solving.
I notice that many computer science majors enter CS for the money. They usually don't do particularly well, or find an innate
Says someone with plenty of money no doubt (Score:5, Insightful)
In the real world real people need money to do real things. Try fucking tell me that I don't need lots of money and I or anyone else should be happy working my arse off earning shit wages the next time their son/daughter/husband/wife needs an operation, or when you want to send kids to school. For that matter if you want to own/rent a decent home you can't go to your bank manager and tell him see I'm not a sell out and expect to get what you need in life. See what a difference $100k will make to a kid's education and then tell me to go do something I enjoy for $30k a year.
If you were doing it for fun and didn't care about making money at it, it'd be a hobby. I'm not saying you should go and do something you absolutely hate for an extra $10k/yr. But if you can make a decent living chances are it won't be fulfilling some passion. You might write business software instead of scientific software for example. Basically you do something RELATED to what you enjoy and realise that to some extent you're going to burn that something as a passion/hobby, because after doing it so many hours a day for so many years you might not be as passionate about it.
People who are only passionate about their work are just as bad as if not worse than those who have other interests outside of their work. They get obsessed with their craft and don't see the big picture, and when something goes wrong at work they have nothing else to keep them happy. That's a one way ticket to bad health, both medical and physical. That's the kind of person that gets suicidal when they leave their job.
The phrase "work-life balance" is one that's often paid only lip service when times are good, but it is absolutely crucial.
IMHO most recruiters, employers and HR departments are clueless. I don't know how many fools I've talked to that just go out to find a candidate that will meet some narrow limited criteria. (You know the kind that wants a candidate who's a fool that'll work 80-120 hour weeks and just happens to have experience with the same goddamn J2EE app server the customer is). The same recruiters wonder why these people act like arrogant asses. The ins and outs of a particular piece of technology can be learnt. Its much harder to break the habbit of being too narrow and focused an individual.
Re:Quit trying to follow the money, and be happy (Score:3, Interesting)
It may not be a good plan to hope to do "something you really like" after many years of minimum effort, but it does work to do SYRL after a few years of maximum effort. At least, it worked for me.
I talked a little bit about this in Great Hackers [paulgraham.com], and much more extensively in "How to Create Wealth," which is probably the most subversive of the essa
Re:Quit trying to follow the money, and be happy (Score:3, Insightful)
The Net will change everything (Score:5, Insightful)
"I think the Internet will have great effects, and that what we've seen so far is nothing compared to what's coming."
That's been my view all along, both during the boom and during the bust. We ain't seen nothing yet. When you create a means of communication such that almost anyone on the planet can interact with anyone else on the planet, great things will develop from it. We saw only the baby steps during the boom, and the bulk of what will develop is yet to come. But it is coming. People love to jump off fads and disavow them. That's especially tempting if you lost money in the process. But the idea of person-to-person direct communciation, and everyone-is-an-author concept, is no fad. People love to communicate, they love to express themselves, and the streamlining that the Net makes possible has, is, and will continue to make breakthroughs in the business world.
Just give it time and we'll see wonders yet unimagined.
Re:The Net will change everything (Score:2, Offtopic)
Especially people who haven't grown up yet, e.g., 'rebellious' goth teens and college students who jump at the opportunity to slam Britney Spears while promoting some half-assed garage band that sounds like shit. Most self-proclaimed critics and pundits also belong to this group; they're nothing more than an adult version of the teen rebel, trying to sell the fact that their negative criticisms and fad-slamming are somehow indicative of a superior intellect.
I think Marx would shit a brick if he could see us (Score:4, Insightful)
Now I know that some will look to outsourcing and say, see class exploitation still exists! Yes, but it is the fault of the people of many of those countries. If your government is corrupt and you have a democratic system of government, why are your people systematically voting for political parties that keep your country from growing. America's corruption is bad, but it doesn't hinder growth anywhere near that of many developing or stagnate countries.
People often want it both ways. They don't want to adapt to a new economy, but they want all of the benefits. You have three choices, and these have existed for most of human history. You can lead, you can follow or you can be dominated. America leads, India follows, others are simply dominated because they refuse to follow the leaders' example and try to grow, and cannot lead on their own, thus another country steps in and economically dominates them. It doesn't mean it's right, but it's a fact of life.
The law of unintended consequences will one day come back to haunt corporate America if it doesn't realize en masse that domestic research and development and manufacturing are the safest route. The rule of law in America can be safeguarded, but Americans cannot do so around the world. The lesson of the "rise of the nerd" is that yes, you can start outsourcing jobs eventually to "regain power over the nerds" but what happens when those you outsource to abscond with your R&D results and your domestic nerd base is so atrophied that they can't compete?
The lesson of the modern economy is that businesses need to realize that no part of the company is less valuable than another. Whereas in the past, the rich could safely exploit their employees, they now do it at the risk of their own base of wealth and power.
Re:I think Marx would shit a brick if he could see (Score:2)
The what?
Re:I think Marx would shit a brick if he could see (Score:5, Insightful)
Re:I think Marx would shit a brick if he could see (Score:2, Funny)
Re:I think Marx would shit a brick if he could see (Score:4, Insightful)
His point about the rising power of nerds highlights something of great importance: the "old class relations" that sparked Marxism are essentially dead.
No, they are not dead. Maybe you are just isolated from them. Or maybe you just see what you want to see....
SO many Slashdotters seem to think that everyone is making 80K a year. The facts show that is not the case at all.
year 2000 Average After-Tax Income by Quintile:
80th-100th percentile:$141,400
60-79th percentile: $59,200
40-59th percentile: $41,900
20-39th percentile: $29,000
0-19th percentile $13,700
You can see that the bottom 40 percent take home 29K, and that was at the HEIGHT of the longest boom in a long while. It has gone downhill since then for most people. No class warfare, huh? Well, there should be....
In many respects now there is a symbiotic relationship between the large number of white collar workers and the "capitalist class" which allows for an almost give-take relationship.
Ohh, man. The word is not "symbiotic", but "parasitic". The capitalist class parasitizes the rest of us. And they feed us baloney about how they are the innovators and creators, etc. yakety yakety yak.
What really galls me is that these scumbags take credit for the cumulative effect of scientific research adn engineering. They point to all the electronic consumer goods laying around and say it is all because of the free market that these things exist. Ah, no. Engineering and science improve incrementally because of stored knowledge that builds up over time and leads to improved products. Our improvements in goods are mainly due to that, and not predatory capitalism.
Now I know that some will look to outsourcing and say, see class exploitation still exists!
Oh, yeah, that "exploitation" stuff, it be a thing of the past, dontcha know....
Yes, but it is the fault of the people of many of those countries. If your government is corrupt and you have a democratic system of government, why are your people systematically voting for political parties that keep your country from growing. America's corruption is bad, but it doesn't hinder growth anywhere near that of many developing or stagnate countries.
Absolutely. It is always the fault of those lazy, scumsucking poor people. A few lashes will improve their morale.
Say, didn't I meet you in a prior life? Weren't you the foreman on a Roman slave galley? Or was it that cotton plantation in 1804?
People often want it both ways. They don't want to adapt to a new economy, but they want all of the benefits. You have three choices, and these have existed for most of human history.
The little scum. They can just suck it up....
You can lead, you can follow or you can be dominated. America leads, India follows, others are simply dominated because they refuse to follow the leaders' example and try to grow, and cannot lead on their own, thus another country steps in and economically dominates them. It doesn't mean it's right, but it's a fact of life.
Oh, pardon, i think i feel a vomit coming on....
Re:Wish I had mod points for parent. (Score:4, Insightful)
Re:I think Marx would shit a brick if he could see (Score:3, Insightful)
year 2000 Average After-Tax Income by Quintile:
80th-100th percentile:$141,400
60-79th percentile: $59,200
40-59th percentile: $41,900
20-39th percentile: $29,000
0-19th percentile $13,700
You can see that the bottom 40 percent take home 29K, and that was at the HEIGHT of the longest boom in a long while. It has gone downhill since then for most people. No class warfare, huh? Well, there should be.
Re:I think Marx would shit a brick if he could see (Score:3, Interesting)
I don't know where you got this from, but even taking it at face value, remember that this is "average" by quintile. In other words, when you look at the 80-100% quintile, this is skewed upwards dramatically by the 98-100% slice that makes something like 500k/900k/6000k. And when you look at that last percentile i
Re:I think Marx would shit a brick if he could see (Score:5, Insightful)
1. the "old class relations" that sparked Marxism are essentially dead
2. The lesson of the modern economy is that businesses need to realize that no part of the company is less valuable than another.
The class relations are alive and well, it's just that statements like the above prove that the class war has been won - by the bosses. Only the working class is convinced there is no working class. Hint: management will never think that "no part of the company is less valuable than another." They spend most of their time attending seminars and classes to reinforce their worth and importance. Where have you been?
You need to read or travel more. If you think class is dead, you have never left the US or your first world comfort, or you have never worked, or you are just talking shit.
Re:I think Marx would shit a brick if he could see (Score:4, Insightful)
My boss only became my boss a couple of years ago. He only gets paid about 15% more than me. We live in the same neighborhood. We have the same level of education. The only "class" differences we have are that I came from the middle class and he came from the urban poor.
I can't get to anyone outside my "class" until I get up to the CEO and CFO, or down to the janitor. Everyone in between from the vice presidents to the landscapers are in the same socio-economic class as I. I know this because we live in the same neighborhoods and drive the same cars and our kids attend the same schools.
Re:I think Marx would shit a brick if he could see (Score:4, Insightful)
What has happened in the past when this exact same situation came up is that the smart people who lost there jobs became available to do other things. The same thing will happen this time around. The nerds who are no longer programming will be free to spend their brain power on something else.
Byron Caplan [mercatus.org] puts it like this:
If you replace "downsizing" with "outsourcing" the sentiment is still true. It's detrimental to the economy as a whole to retain workers in the US when there are workers available elsewhere who are willing/able to do the job more efficiently. The US workers are not freed up to do something else and we (as a society) are forced to pay a premium wage for a less than efficient work force.
Each one of us outsources every day. I know of no technologist who also does all of the following:
- makes all of his/her own clothes
- grows or produces all of his/her own food
- builds his/her own house
- self insures against casualty
- produces their own electricty
- obtains, cleanses, and distributes their own water
- etc, etc, etc.
All of those things are outsourced by individuals to someone else. No one has the time to do ALL of that AND be a technologist. So what has happened when they outsourced those activities? It freed them up to be technologists. The same thing is true when the job of technologist gets outsourced to elsewhere. Smart people are freed up to do something else.Re:I think Marx would shit a brick if he could see (Score:4, Insightful)
Note that the kind of people who make the decision to outsource jobs have nothing to worry about. They have enough money that if the US sinks into the ocean, they'll just go somewhere else.
Not deader than ever (Score:3, Interesting)
Marxism classifies people not by their place on a 'social ladder', but by ownership of means of production: capitalists own them (factories, resources, distribution chains etc.), and workers don't. Hence, the concepts like "middle class" are out of Marxist classification: you have only the capitalists and the workers.
Now, in post-industrial society the su
I lost him here... (Score:5, Insightful)
I just don't believe that. I remember people talking about how this was bogus at the time -- AOL got slammed for similar practices. If I knew it was a pyramid scheme, I find it hard to believe that the incredibly sophisticated finance types working for Yahoo! didn't.
I used to live in Chicago. When I first moved there, I wondered why none of the aldermen seemed to be honest. The answer, I think, is that the system prevents honest people from moving up.
I have the same impression of wall street. I don't think that honest managers can run public companies in a way that's competitive. A guy like warren buffet is an obvious counter example, but he's unusual and he dates back to a different era.
By the time these crazy bubble scams came around, we were living in a different world with different expectations. Share prices had to rise quickly and constantly, and the only people who could pull that off were scamsters.
I don't think the geek community has ever really come to terms with what happened on the financial side during the bubble, how crooked the people who ran it really were, or how much damage it did to the economy. The google IPO was surrounded by nostalgia for the bubble -- if only the old days would come back!
Almost all of what this guy says strikes me as questionable at best.
Re:I lost him here...finally (Score:2, Flamebait)
Yes, most of P G's articles are based on questionable assumptions and more questionable thesis statments..
Most finanical wizards describe the bubble as the fleecing of Retirement fundws.. which in fact was..as we the investment public moved from indvidual stocks in the 1980s to mutual funds as our major source of funding for IRAs and etc..
Paul Graham = New Jon Katz? (Score:3, Insightful)
With the regularity his screeds are being posted here, and the diviseness they seem to cause, I think he's a definite candidate to the be slashdot's resident ranter.
Graham's daydream (Score:5, Insightful)
The big question here is how you can possibly build customer loyalty if you outsource the business unit which is in charge of customer relationships. This doesn't sound like a wise idea to me.
Re:Graham's daydream (Score:5, Insightful)
Re:Graham's daydream (Score:3, Interesting)
How much do you talk with Google? Do you call up Amazon much? If you get it right, outsourcing customer relationships is not a big problem.
I used to work for MyHomeKey.com, and customer relations was a BIG part of our business. (I think we outsourced it to a company in Texas.) Generally speaking, we had top notch ph
Re:Graham's daydream (Score:2)
Re:Graham's daydream (Score:2)
Which means that if you can find a good outsourcing partner, everything's good. If you can't, you either pay a hefty premium for something you can do yourself for far less, or you end up getting *nothing* done properly.
Which is funny because he totally misses the boat in his own logic. The other nice part about 26 year old nerds is that the afforementioned easygoing silicon valley nerd, who has been compensated properly with options, is going to be
Re:Graham's daydream (Score:2)
Thus, the current state of the workplace.
Re:Graham's daydream (Score:5, Interesting)
The one corporate archetype that I've found that could realize Paul's (and my) dream is the model that ARM [arm.com] follows. ARM is the intellectual property company that focuses on R&D behind the ARM family of RISC microprocessors. The trick is that they generate all their revenue from licensing fees and royalties from partners (like Intel), who take the R&D that ARM does and incorporates it into their own offerings (like StrongARM). ARM, while >10 employees, is miniscule when compared to it's competitors in the microprocessor space. And insanely profitable. ARM's is a fascinating story, and should be a case study for anyone who wants to see how a tenacious and dedicated team of really smart people can create a successful business in the face of seemingly overwhelming odds.
Licensing of IP is one of the few formulaic ways that I've seen where one can accomplish big money while maintaining a small core team.
Look at the bigger picture (Score:5, Insightful)
Re:Look at the bigger picture (Score:3, Interesting)
What did the bubble ever do for us? (Score:5, Funny)
continued at:
What have the Romans ever done for us? [c2.com]
Lessons learned. (Score:5, Interesting)
Now I can jump up and down and DEMAND a development server and have plenty of examples to back up my need for one.
I'll now be the first person to raise my hand and ask the following question: "So, how will this make money?"
Whenever I hear New - anything - my instant reaction is BULLSHIT!
Those were great times; I wouldn't trade them for anything
I think the lessons learned are worth the pain.
JD
Re:Lessons learned. (Score:5, Insightful)
A few more...
The Alternative Minimum Tax laws affects more than Bill Gates and the rest of the 'super wealthy'. Get professional advice.
Those pesky legal contracts can really get you - pay attention to what you sign. Treat them like they did ask you to prick your finger and mumble something about your first born. Get professional advice.
Those who turned the lights off in the server room often found the quad processor Sun kit was really noisy when you brought it home.
I hope my boss is reading this... (Score:5, Funny)
now go get me some coffee, b@#ch!
Re:I hope my boss is reading this... (Score:5, Insightful)
In addition, the rumors of the obsolescence of powerful connections is greatly exaggerated. Just ask Halliburton.
Re:I hope my boss is reading this... (Score:3, Insightful)
To be fair, there were a lot of 26 year olds with the great idea of getting a bunch of 50 year olds to invest in their bad ideas....
Been there, dumb, that! (Score:5, Interesting)
Foolish disclosure: I made money on only one of those starups and that entirely by accident. I wish our VC's and senior management had the long term vision, so absent in those days, that is implied in Graham's article.
who put this sig here?
California??? Duh... (Score:5, Insightful)
Where has this guy been?
California has been the next instant source of wealth since well before the gold rush! The bubble wasn't the first time silicon valley became the center of the universe - take a look at the first PC boom/bust of the 80's.
Sorry to be so provincial here, but being a California native I have a bone to pick about the characterization of California. Sure, we are all totally super nice out here and polite and all of that (um - yeah right) - but keep in mind, most of the people from here ARE transplants.
I'm a native of the Bay Area and have lived here all my life - I can count the number of people on maybe one hand who I know can say the same. So the attitude has little to do California or Silicon Valley.
I took a detour to New York for a year and a half in the mid-nineties. While I found that most New Yorkers did have a rough crusty exterior, once you get passed that they are as warm as anyone from CA. Not only that - but friendships (like startup ventures), have a tendency to be somewhat transitory in California. I found the opposite on the other coast.
That said I wouldn't live anywhere else - but to each their own.
Re:California??? Duh... (Score:2)
It's panning for gold. Loads and loads of starry-eyed college grads come out here. Every now and again, somebody gets a really great idea, and generates a startup and recruits friends. And then some of those people make it big. The companies who make it big then bring college grads in to increase the nerd population again to fuel more startups and such.
Of course, usually the big guys then expand outside of the "expensive"
Re:California??? Duh... (Score:2)
I'm a native of the Bay Area and have lived here all my life - I can count the number of people on maybe one hand who I know can say the same. So the attitude has little to do California or Silicon Valley.
While I found that mos
So let me get this right (Score:5, Funny)
I regret to inform Mr. Graham.... (Score:4, Insightful)
You need that to get a really big bubble: you need to have something solid at the center, so that even smart people are sucked in. (Isaac Newton and Jonathan Swift both lost money in the South Sea Bubble of 1720.)
He's wrong. Really wrong. I, and others, were able to see through the hype and stupidity during the bubble, and see what companies had real value, which didn't, which were over-valued, and in some cases, which were under-valued. I don't know how much money he lost, but claiming that "even smart people are sucked in" isn't a valid excuse, and no amount of history on how physicists and poets don't necessarily good economists is going to change that.
steve
Re:I regret to inform Mr. Graham.... (Score:3, Insightful)
And, your net worth is... ?
(I didn't think so)
Re:I regret to inform Mr. Graham.... (Score:3, Interesting)
Graham's argument would be that the core of the Bubble is "The Internet is going to fucking change everything." Which has a definite amount of validity to it.
I imagine you would argue that the core of the bubble was "The Internet means profit is for losers." Which is of course silly.
Re:I regret to inform Mr. Graham.... (Score:4, Informative)
As you might guess from the fact that I estimated YHOO to be worth $12 when it was trading around $200, not a lot. I was well aware that the Bubble was a bubble at the time. Friends still imitate me saying "for God's sake, sell."
Re:I regret to inform Mr. Graham.... (Score:3, Insightful)
Hindsight is always 20/20. It's easy to play armchair quarterback, its quite another to put your money where your mouth is.
Re:I regret to inform Mr. Graham.... (Score:3, Funny)
Oh if only we'd all listened to you! We were all fools! Thank you for showing us how stupid and naive we are, and conversely, what an insightful visionary you are! We'll never doubt you again!
Get off your horse, snarky prick.
Eh...no, he's wrong about one thing. (Score:4, Insightful)
Sorry, boys, we had our time, and it's come and gone.
Re:Eh...no, he's wrong about one thing. (Score:2)
One could argue that Apple has the better marketing department. The difference between MS and Apple is also philosophy, not just in how they're marketed. Apple 'went for the marlin' and while admirable for it, didn't catch anywhere near as much as MS did by 'trawling the seas'. MS strategy on both the technological and marketing fronts are geared towards the most common denominator approach. Apple hasn't operated like that.
Re:Eh...no, he's wrong about one thing. (Score:3, Insightful)
If it were, we'd all be using Excite or Lycos (remember them?) instead of Google.
Biggest Impact? (Score:3, Insightful)
(Results 1 - 10 of about 695,000 for titties. (0.36 seconds) - direct from google
How is this Offtopic? (Score:5, Insightful)
The moderators must be suffering a severe case of literalism.
And I for one celebrate
Nitpick (Score:4, Insightful)
I've seen plenty of ads for Google's "adsense" technology, especially here on
Greenspan Crashed The Ecnomy (Score:3, Interesting)
There was plenty of high value in the network revolution and still is. It's just that so many con men showed up, that when Greenspan put the screws down trying to make it a zero-sum game, the positive-sum players got eaten alive by the zero-sum players.
People couldn't see through the bubble? (Score:5, Interesting)
Re:People couldn't see through the bubble? (Score:5, Interesting)
I've traded futures and shares for many years, so I knew a bubble when I saw one - recognition that a bubble was happening was part of my training, if you want to look at it that way. However, one of my close friends, who is a *very* savvy businessman and has held very high level roles with multiple global corporations, used to argue with me that "everything has now changed with the Internet", "stock dividends are irrelevant now" and so on. Lots of investment advisors were saying the same thing; presumably some were trying to profit by boosting the stock they wanted to sell, and others were too dumb to know any better.
I pointed out to my friend that this had been said many times before, which he knew, but he thought the Internet bubble was The Big Leap Forward. His background covered 20+ years of business in manufacturing and IT, and he'd seen the Internet and related technologies could make changes to those areas that were an order of magnitude more significant than anything else he'd seen. All of this is still true, so he's not actually wrong.
As others have said, spikes in Yahoo, Cisco, MS, Sun etc. share price will happen, but the infrastructure that supports these companies is probably the safer investment bet in the long term. That said, a lot of people (myself included) felt that Cisco was one of those infrastructure companies, but it was part of the bubble - it can be hard to distinguish between the two.
Re:People couldn't see through the bubble? (Score:4, Interesting)
Not that you don't know this, but to comment on what happened and why it happened to Cisco. It's a simple answer. People bought boat loads more equipment then they needed. Cisco had built a manufacturing pipeline based off needs at the height of the bubble. They we're feeding off the VC. Once that dried up, they had way too much inventory, way too much capacity, and had goals way out of line with the needs of the market.
People just way overbuilt the capacity. I'm not sure if it's still true but at one point people were saying something like 90% of all fiber in the ground is still dark. Cisco was or had just finished gearing up for growth when the well went dry.
I'm not going to say I saw thru it from the beginning. However, I have no formal economic training, and nothing but a skeptical mind. I invested in a startup thru my brother. He just wanted a check, and told me he had this great idea. He needed some funding to get thru to the VC stage. The day after he gave me the predictions for my net worth after the IPO, I just laughed and asked if I could cash out. Unfortunately, I couldn't. It was a scam. Everyone in the company had every intention of selling out the moment it was legal after the IPO. No one had any interest in actually starting or running the company. All they wanted to do was bring in investors and then print stock to sell. It was a classic pump and dump. However, they had Deloitte and Touche (I'm told a well respected accounting firm) proding them along, because everyone stood to make money.
I took my percentage of the company and what my predicted value was, and used that to estimate the market cap. He was claiming the company that had 3 employees and $50K in startup money and was in business for a total of 360 days was going to net 10 times as much as the VA Linux IPO, which at the time was the single largest IPO ever. I laughed, a company with no assessts, that any lawyer could file the paperwork for. All they needed some a couple of stooges to get excited for the VC people and they were set.
We missed out on IPO'ing. I'd have happily just taken my money back once I figured out what was going on. I'd probably be rich beyond my lowly asperations if it had gone off one 1/100th as well as he claimed it would. Oh well, live and learn. Maybe by the time I'm 50 nobody will remember and we can have a repeat of history.
I had it figured out by the winter of 1999, you can't tell me everyone else didn't know by then. They really just wanted to cash in before it dried up.
The internet will change the world, it is a disruptive technology, but one doesn't fundamentally shift an economy the size of the US in a 2 year period. The benefits claimed will be there, but they'll be there 20 years from now. Unfortunately, nobody was willing to make the investments and let them grow over that period of time.
Kirby
Options (Score:5, Insightful)
Re:Options (Score:3, Interesting)
It's an interesting question how the affect of options tails off with size. I suspect it is not linear though. By the time I left Yahoo it had 2000 people. You'd think that would be well past the point where ordinary employees thought they could affect the fortunes of the company, but it wasn't. We had the most gung-ho receptionists you
Heh (Score:3, Funny)
Small Companies (Score:5, Insightful)
One upshot of which is that the companies of the future may be surprisingly small. I sometimes daydream about how big you could grow a company (in revenues) without ever having more than ten people. What would happen if you outsourced everything except product development? If you tried this experiment, I think you'd be surprised at how far you could get. As Fred Brooks pointed out, small groups are intrinsically more productive, because the internal friction in a group grows as the square of its size.
I know from experience (non-trivial engineering projects} that more people does not necessarily equal more success; sometimes it drags down an effort while the original goal gets lost in "management".
Wow, that was a pretty crappy comment. What is always needed is a leader who knows what he's doing, not a cheerleader who has a vague idea of what's going on, and this applies to software as well as making widgets.
I'll trade 1000 "money-making" employees (after IPO) for 10 people that are focused on the goal.
I take issue with one point... (Score:5, Interesting)
Options were part of my compensation when I first started my current job back in '99. We went IPO in Spring '00. About a dozen of the higher-ups became millionares at the opening bell. At the height, my options weren't worth anywhere near millions, but it was fair chunk o' change for a 1-year-out-of-college grunt. Unfortunately, I wasn't vested, so I couldn't excercise any of my options...
I just reached my 5-year anniversary, and my initial option grant is now fully vested. It is also fully worthless. After being delisted from NASDAQ, even if I could find someone OTC to buy, the share value is but a fraction of my excercise price. Now I do know people who worked for larger companies who have made, and continue to make, a decent return on their option grants. It is a great incentive to both keep the employee productive (his production has an impact on the stock price) and loyal (encourage him to stay with long vesting periods). But there are just as many of us "survivors" who took a lower salary with option grants who got burnt on the deal.
Re:I take issue with one point... (Score:4, Insightful)
The problem with options is they work. They work too well for the upper management. The C*O's should be responsible for the long term growth of the company, they are the check & balance to the shareholders worried about stock price.
When you tie a 5-10X larger benefit to stock price rather than salary - you remove the personal incentive for the C*O's to be the stopgap. Their job in relation to the stockholders is preventing decisions based solely on increasing stock price without regard to longterm profitability.
They are not answer, for exactly the reason Mr Graham states - they reward the wrong thing. But they are fundamentally wrong because they reward the exact opposite of what C*O's need to be rewarded for.
Maybe options should be replaced with something tied more directly to earnings.
Something like profit sharing, or bonuses. These have been around and they work. They are not broken, so why fix it?
Bubble (Score:4, Insightful)
Really what companies were trying to do was to centralize services on the internet, if they had suceeded and been able to keep those monopolies for any length of time their mindshare alone would have been worth the investment.
Many of the companies that accomplished this are increadibly successful (Amazon, Google, MSN, Yahoo etc.)
Unfortunatly they never reached a level of dominance where they could control the advertisers, which was where a lot of income was supposed to come from. Also they didn't understand the idea of the internet which is to sell to everyone with a tiny profit margin(and infintesimal overhead) therby reaping huge rewards, instead they went with the "Spend tonnes of money on marketing then overcharge the consumer" market strategie which is so prevelent today.
There will be another bubble when people begin to think long term. This long term thought bubble may last longer than the short term thought bubble. (I think that's a funny pun, kill me).
Where I disagree... (Score:5, Insightful)
If there's one thing that I think no 26 year old will ever have it's the ability to navigate politics. Deciding what to build next is trivial in comparison to having the gumption to stick with it to get it done. And that requires people motivation skills. That requires tuning out all of the other hype and distraction. Are 26 year olds capable of this? Of course! But the 26 year old who can do this is exceptionally rare. The VAST majority of people only learn these skills over time... and come to realize them in their 40's and 50's.
This is why there are so incredibly few successful companies lead by 20-somethings. Say what you want about corporate america, but in this case, their greed reveals them. The "old boys club" can't motivate nearly as well as the bank. The fact that there are very few 20-something CEO's indicates that, except for the very rare case, 20-somethings don't yet have what it takes. If they did, there'd be no shortage of people following them to the bank.
$.02
Options (Score:3, Informative)
For example I have been offered 4000 options at work at $1 each. The company is not public. Also these options take 4 years to vest. That's 0.016% of the company.
Now the number that you need to know is how many stocks exist. (Not outstanding, in Total number of shares) This number is not included in my option package so I had to ask. (It's 25 million).
The only way for me to make money is for my options to vest, and for the company to be sold or go public while I am there.
Let's say that the company is sold. This is what I would get based on the value of the sale.
25M = $0
50M = $4,000
100M = $12,000
1B = $156,000
So if my options are vested and the company sells for over $25 Million I might make some spare change. Considering the fact that I work for a small startup with less then 30 people these options are an insult.
So kids if you're getting an offer from a place with Stock Options; be sure to figure out what they are really worth.
Some good stuff, over-romanticized (Score:3, Interesting)
I do take issue with his emphasis on 'nerds' and 'style'. Of course the technically inept manager-types are called 'suits' because their fashion is attempting to hide technical incompetence, and nerds dress down to avoid that. But, its one thing to dress down to repel pretenders, it is another thing to avoid dressing up because you can't pull it off yourself.
He's over-romanticizing and overrating the nerd 'culture', which is essentially an over-focus on one tech competency to the exclusion of all else. Even when 'eccentric' single-minded tech or science types do get rich, they get far less than they would if they were more 'well rounded'. Even the tech-wealthy like BGates are arguably more competent at business and law than they are at tech.
The tech types will always need to develop real competence in broader areas of life and business if they want to be taken seriously. The lack of breadth is what marginalized CTOs and their IT departments. Rather than understanding the business well, finding innovative ways to become more competitve, and selling their vision as strategic peers, they focused on their infrastructure, workload, etc, and so became seen as plumbers, and were outsourced at the first opportunity. There are exceptions, but as a class, we've blown it.
Was it because the suits were too dense to see the opportunities presented, or because CTOs didn't make their innovative strategies heard -- who knows? But the result is the same.
Perhaps the best result is that the competent tech folks go off and form their own businesses, and sell stuff back to the suits at 5x the price; but that still requires much more than just the tech competence he extolls.
It'd be better if he was more clear about that.
Re:Some good stuff, over-romanticized (Score:3, Insightful)
Actually it seems to me that nerds tend to have a broader range of interests than ordinary people. If you go to the average tech company, it is the developers and not the accountants or legal department or salesmen who are most likely to have travelled to Nepal or to know about Roman history.
the bubble got pricked (Score:3, Insightful)
It absolutely needed that high speed. Where there was no broadbant, the word was, hey, consumers don't need broadband! what's it good for!
Pictures, sound, VOIP, video, computer networking, always on communication, remote access, great big drives to hold that stuff, to back it up, processors to handle it and bigger lightweight screens, wireless communication.... dun!
Al Gore? A superhighway with no off ramps, Al. Doesn't work.
The bubble got Globalization right too... (Score:4, Interesting)
I was a founder/director of a New York webshop which I started and later sold for stupid amounts of cash to a bunch of guys who then still believed the "up up up" mantra of the day.
Our company built all kinds of supply-chain mgt. tools, extranets, inventory systems, etc. -- some of which was good, and some of which was thrown together from pieces of code I'd be embarrassed to post here.
The crazy thing is though -- that sh*t really did change the planet.
Two years ago (post bubble) I started a small (very small) manufacturing business building (we'll say "widgets") in China.
I was instantly struck by the fact that sourcing a manufacturer, monitoring production, sourcing raw materials, shipping, tracking inventory, selling and fulfilling are *ALL* internet enabled now -- by similar tools to the ones we had been building for the past 6 years. Not to mention the fact that if you know how to build/use those tools, you can beat the pants off businesses that are 10 times your size.
Now I have a slowly growing manufacturing business (struggling more than growing most weeks) which could not have existed pre bubble.
On a larger scale, this is a huge trend. The fact that the little guy can find a manufacturer overseas, produce widgets (literally anything you can think of), and go head to head with billion dollar manufacturing businesses is a fantastic degree of empowerment. And its completely a result of our "failed" internet bubble.
Anyway -- my two cents -- the time for building the tools is over. The time for using them is here.
Peace.
The problem with stock options... (Score:4, Insightful)
The real problem with stock options is not that CEOs are (yes, still today) making millions of dollars per year from options, but options are fundamentally flawed as an accounting measure. When granting an option, the company is increasing the number of shares their company offers, thereby decreasing the value per share from those who already own the company's stock. Furthermore, when creating options the companies do not have to claim them as an expense, as they do, say, employee salaries. So companies can hire employees for less with the promise of options, and reduce their expenses (since salaries are lower and options don't count against expenses), thereby (artificially) raising their bottom line. Who gets screwed in this are the public who purchased the shares at retail price.
Stock options are fine, but only if they are treated as an expense against the company's bottom line.
Re:The problem with stock options... (Score:3, Interesting)
How do you calculate the cost to the company? You can't estimate the cost when the option is granted, it have no fixe
What the Bubble got wrong (Score:4, Interesting)
First off, he says he is coming from the vantage point of Yahoo.com. When Yahoo IPO'd, I knew "the market" had gotten ridiculous (the fact that Yahoo, was IPO'ing, never mind what it IPO'd at and went to). I had been buying stocks up to them using the fundamental analysis technique pioneered by Benjamin Graham. This is the technique the best stock pickers of the second half of the 20th century - Warren Buffett and Peter Lynch - use. Among all things it concentrates on profit and profit growth. Yahoo had made no profit, in fact it was losing money, so I knew it was ridiculous. In fact, I remember most clearly August 10th, 1995 when Netscape IPO'd and went to over 100. That's when the stock market bubble started in most estimations. I actually bought Netscape that day, and even made money on it. But I always felt the market was unstable after that, and I was right.
All this person sees is the small piece of ice on the top of a giant iceberg. He's still speaking in bubble-speak. The only thing connected to reality is #10, productivity. And everything he says within that is nonsense.
One thing neglected in all of his delusions that IPO's and Venture Capital in the mid-1990's created the massive Internet that we have today is the decades of government paid R&D, in the billions of dollars, through DARPA, that actually created the Internet. The Internet was a socialist, or, to be technical about it, a fascistly modelled (business/government cooperation) economic program. Decades of taxpayer dollars poured into R&D which creates something which *starting* in the mid-1990s can be used to start increasing productivity.
Economists have been debating whether or not productivity increased due to the Internet thus far and it very may well not have - it may take decades for that to hit. Despite all of the technical innovations in the early 20th century (cars, assembly lines), it wasn't until the end of World War II that any of this productivity was significantly felt, and that was after massive government involvement in the economy, starting with the New Deal, through the WWII almost total takeover of the economy by the government including rationing, on to Eisenhower and his "military" buildup. It wasn't all to strictly military purposes, the highway system was originally sold as a military expense (Original name the National Defense Highway System) along with the government funded R&D that created transistors, computers and so forth.
Also not mentioned is the severe world economic crisis that became apparent starting in the mid-1960's, started affecting things obviously in the early 1970's and which is still with us today. The average US inflation-adjusted hourly wage is below [bls.gov] what it was 30 years ago. That does not sound like the economic utopia he is talking about - the US (and industrialized world) has been digging a whole for 30 years, with brief respites in the mid 1980s and late 1990s, where capital went hog wild during the short lived good period.
This person doesn't even seem to understand equity fundamental analysis within the current dominant economic viewpoint, never mind alternative economic viewpoints which see the economic system as even more fragile, which I subscribe to. Even dominant psyche stalwarts like Alan Greenspan or chief economists on Wall Street like Stephen Roach often speak gloomy things which you can read about in the Wall Street Journal, but not in the local newspaper for idiots with a big sports section on the back cover and local murder news on the front.
Hype Machines Squash Opposition (Score:3, Interesting)
BULLSHIT. The bubble was perfectly obvious, but the "hype machine" was running at 110% throttle and didn't allow criticism of itself. People like myself were shouted down
The exact same thing is happening right now in the current bubble of American politics. It is perfectly obvious that America is starting WWIII, but the hype machine doesn't allow examination of that, much less criticism. After 1995, criticism of the Internet was squashed in a similar fashion; due to people's greed and hatred, they fully supported an irrational environment of operation. Hence it crashed. It could only crash.
Re:bad article (Score:4, Interesting)
Re:Paul G. is a "one trick pony" (Score:4, Informative)
... which is one more than you've had.
Other things notable about Graham which he can claim and you cannot:
So yeah, I'd give him the benefit of the doubt.
Re:Paul G. is a "one trick pony" (Score:3, Interesting)
This was already happening during the Bubble. One of the companies we worked closely with was started by MBA types, and outsourced all their development to India. It was a disaster.
Outsourcing development is for banks who need to get reams of routine database software written, not for startups. If someone is really just a "marketing expert," they won't have the vision to tell the armies in Russia and India what to bui