When ALL Assets Are Crashing – Make Sure There Is A “There There”
Pets.com famously spent $46 on advertising for every $10 in sales and flamed out in one of the most famous dotcom busts.
The model was flawed from the start, and in hindsight it seems obvious that they could never generate profits – but investors bought up the stock by the bushel anyway.
The story was similar to many other famous dotcom flameouts like Webvan, and eToys – and you can read about many of them here: The Ten Biggest Dotcom Disasters.
So – why do people invest in future flameouts – when there is often nothing “there” (no chance of profits, no underlying assets, and/or no service that anyone actually demands)?
Such “bubbles” are usually spawned by excess money in the economy (thank you, Fed) desperately looking for returns anywhere they can be found, and that in turn spawns hype (bringing in naïve investors) and comments about “new paradigms” (which usually don’t exist).
My favorite WSJ columnist, Andy Kessler, commented on our current wave of “corrections” in his WSJ column today – which can be found on his website, here.
He pointed out how the crypto universe has recently shed $1 TRILLION in value. Yes, $1 TRILLION – amazingly enough.
He also mentioned the massive stock selloffs we have seen as of late.
The NASDAQ has fallen from a high of 16,000 last year to less than 12,000 now, and Bitcoin, as one example of crypto, has fallen from over $67,000 last year to less than $30,000.
(As a full disclosure, I am not anti-crypto and I own some; I am just not sure where it lands in the investment/currency realm).
Kessler was making the point that there is often nothing backing many investment assets other than stories in loose-money-fueled environments, and those stories often don’t pan out.
The Big Puke
And we are seeing the repercussions now. He then speculates about when the selling will stop – and he says we will see some bouncing around before we see the “Big Puke” – when everyone is forced to sell.
Robinhood, Peloton, ARKK, and Coinbase may not be long for this world – but at least they have more behind them than many dotcoms did (but maybe not enough, and probably too much hype).
It is interesting to look back on the dotcom stocks that did survive like Amazon, Adobe, eBay, and Shutterfly. They were all businesses with viable plans, products, and profit potential – with more than just stories.
I have blogged about the precarious nature of our Fed-fueled economy many times, reminding everyone to diversify – and I hope everyone did, as Kessler is reminding us that the low-interest-rate, Fed fueled economy is coming to an end.
He thinks high rates are here to stay, and I disagree with him. But I do like his reminder to look for investments with a “there there.”
And – this is also why I like real estate so much because there is always a “there there,” e.g. a home that can be lived in and that will appreciate eventually.
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