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IP: Why Internet stocks defy gravity
From: Dave Farber <farber () cis upenn edu>
Date: Wed, 12 Jan 2000 21:30:46 -0500
Date: Wed, 12 Jan 2000 11:44:42 -0800 To: David Farber <farber () central cis upenn edu> From: Larry Tesler <larry () nomodes com> Subject: Why Internet stocks defy gravity The world's greatest economists have not been able to explain the stratospheric valuations of Internet stocks. Since I nearly flunked economics in college, it follows that I am uniquely qualified to address this issue. People give other people their money to invest because they think those other people will invest their money well, in fact, better (due to time, skill, access to information, or whatever) than they would have invested it themselves. Example. People think Steve Case will invest their money better than they could themselves. Case seems to know something other people don't know. He's done a good job with other people's money until now. Every time he invests people's money well, they give him more money to invest. This week, he proved their faith in him by acquiring a real big company that has real assets and even profits. That proved they were right all along to give him their money--and at the seemingly high stock prices that they did. Even Time Warner management thinks Steve Case can invest money better than they can. And if they think so, who's the little investor to argue? Case is just one example. People give Sand Hill VC's a lot of money to invest because they've shown they can invest it better than the rest of us. They, in turn, give that money to entrepreneurs whom they believe will invest it better than they can. And so it goes. The Internet's own powers of instant and ubiquitous communication makes it easy to figure out who's investing well and makes the process described above very efficient. As long as Internet VC's and entrepreneurs keep scoring goals, people will keep throwing them the ball. QED. Larry Tesler
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