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I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…
That show is so on point sometimes.
Secondarily is a new kind of emotional injection from a wave of new retail investors. This happened in the .com when retail started in earnest with online trading.
And of course 'a kind of inflation'. The Fed is printing money like no tommorow, there's more money chasing fewer deals, very low interest rates. See: home prices.
It's psychology-fueled. Also, a lot of companies reinvest profit so they don't have to pay taxes.
Don't they use accounting tricks these days so they can keep their cash and then carry it to the stock market? This has the double advantage to keep the stock market inflated and compared to R&D where you risk product failure, the stock market is backstopped by the government and risk-free. That's why we don't have flying cars. Instead of investment in core competencies we invest in the market.
It's also hard to use traditional metrics like EBITDA in a fast growing, expanding SaaS company. So much is based on future growth and revenues and getting over that hump to where the business becomes a raging cash geyser. Some will make it and some will not. But no one really knows who will make it and where they'll tap out today. For all we know many of these companies are unbelievably undervalued.
Additionally, I think there's a belief that there will be consolidation and many of these SaaS companies will be acquired. This has happened to an extent. Hell, the Mulesoft acquisition looks like a bargain today.
I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…
I didn't know that's what they had intended. I never once thought that's what they were going for.
It is a pyramid scheme and must pop someday. Really just depends on how/what/when the Fed does.
A profit is gain realized by buying things, recombining them using innovation, and selling at a favorable price. A true profit is something you make, again and again, and with diminishing returns because prices move and the gap closes, as with arbitrages. Rents, which are more reliable, are payments you collect because you own things. (You may use those things, or you may, using the more common sense of the word, rent those things out.)
Most "profits" are actually just rents. Rents extracted because the company owns real estate, rents extracted because of brand presence, interest (which is a rent on money) through financing programs, rents extracted because workers' need for daily survival has them systematically underpricing their labor, and rents on political capital (favorable regulatory environment).
Getting paid because you have a great idea is intermittent, and usually requires taking on a lot of risk, and risk is something established companies hate. Getting paid because you own something is easy-as-shit and forever reliable. Where does the car industry make the bulk of its gains? Not on selling the cars, but in financing. It's an evergreen business, so long as there is capitalism-- there will always be people who need money they don't have, and it will always be an easy business to collect the vig.
Regular businesses eventually stop innovating-- they have plenty of smart people, but the bosses don't want to take risks because they're busy collecting personal rents by holding management positions, and obviously don't want to lose that-- and their "profits" converge to the rent roll on the resources they own. That's just how it works. Average equals mediocre, the latter used non-pejoratively.
That said, it's not sexy to imagine that one is investing into companies that have become mere utilities, that will continue to collect rents on the resources they own (of which a person can buy a tiny fractional share of the ownership) but not really do anything interesting.
These ultra-capitalist non-profits (non-profits-for-now) create the illusion that they're something different... that they're "rocket ship" companies run by people with supernatural talent and "vision", that they aren't rent-seekers using capital's native advantage over labor for reliable but unpulchritudinous gains... which is what all large companies are... but, instead, a kind of "new company" that is going to innovate moonshots and synergize us up a new century of prosperity, freedom, and magical puppies that never poop. Smart investors recognize that all of that is bullshit, and that these tech unicorns are just as exploitative as traditional companies (and, in fact, probably more so) but they also realize that dumber investors get the warm fuzzies and that there is therefore a premium.