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Fat, Drunk and Stupid*

Fat, drunk & stupid is no way to go through life, son.” – Dean Wormer, Animal House.

Are the residents of Animal House again running Silicon Valley?

The LinkedIn I.P.O. was successful when shares doubled on day one of trading.

Microsoft bought Skype for $8 billion (10x 2010 sales).

The Groupon I.P.O. is imminent. Groupon’s value was $1.3 billion a year ago. Google said ‘No’ at $6 billion last December. Today it is being valued at $20 – $25 billion. “While sales at the Chicago-based company surged more than 14-fold to $644.7 million last year, Groupon has also amassed $540.2 million in operating losses since its founding in 2008 and its costs are rising faster than revenue.” How ironic that Groupon e-distributes discount coupons.

Investors will recall the March 10, 2000 headline – ‘Nasdaq 5000’. Yes, there are differences from the late 1990’s. Today there are over 2 billion internet users spread globally. Today, many internet firms have actual revenues and profits. Today, the Nasdaq technology index is under 2700.

But …

Fat? Consider anecdotal evidence such as recent Palo Alto real estate price increases.

Drunk? Inventive I-Bankers are more than willing to slake investors thirst for yield and growth with plenty more I.P.O. product to come. The country clubs are again crowded.

Stupid? Smart investors will show judgement and common sense and say ‘No, Thanks’ this time.

*With apologies to Calamos

Next time?
Why Stock Markets Correct.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan

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