This time is different

Things are different this time. They are different every time. The industries and companies change. But some things stay the same – human behavior, crowd psychology, and the seduction of narratives.

I’ve been rereading some contemporaneous accounts of the U.S. TMT bubble. Here are a few notes from bubble.com published by Howard Marks in January 2000. See if you notice any parallels with today:

1) A belief that new technologies and companies have the “potential to change the world.”

2) “Everyone in the investment profession knows (or knows of) somebody who has made hundreds of millions (or a billion) this year on a ________ investment.” The lure of possible riches draw many in.

3) VC has had fantastic returns and there are many new entrants (hedge funds, family offices, etc.).

4) “Despite their lack of profits, companies like ____________ were able to finance their operations by raising capital at higher and higher prices” (this reference predates the TMT bubble by a couple of centuries).

5) The IPO market is wide open and receptive to stories (no revenue, no product, no problem).

Times of easy money tend to sow the seeds of their own destruction (the reverse is also true). Humans being humans, after all, tend to take things too far (and then some). As noted in the memo, “no investment opportunity is so good that it can’t be screwed up by the wrong relationship between supply and demand.”

Weak returns tend to follow times of easy money and enthusiasm. The best returns tend to follow periods of bad results and despair. For example, in the dark days following the collapse of Lehman Brothers.

Link to the full memo: bubble.com

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