IP: Why Internet stocks defy gravity

[Dave Farber <farber () cis upenn edu>]

> 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