Bubble or paradigm shift?

I’ve finally decided to write my two pence on what’s become quite a bubbly discussion in itself: are we in another tech bubble?

Let me start by saying rather controversially that first I think this is the wrong question to be asking. Great companies have emerged out of bubbles as we’ve seen in the Web 1.0 phase. Yes there were a lot of failures, busts and losses in early 2000’s; but what we forget is that there have also been big winners whose collective gain outstrips those losses. Companies like eBay, Amazon and Cisco all came out of the first tech bubble and have proven to have strong and sustainable businesses which are still growing. So focus on what YOU are doing not what the herd is doing I say.

And what is a bubble anyway? There are tonnes of text book definitions which ultimately focus on technical definitions like valuation. Are things over-priced and is there too much liquidity being pumped in a sector or asset class? To me these are the wrong definitions. We are at the onset of a paradigm shift (which I explain below) so almost by definition existing valuation models will be wrong, So for me multiples being high means very little. What it comes down to is people getting ahead of themselves and investing in things they don’t fully understand or appreciate – and why? Because someone else is. “Oh I have to jump on this bandwagon…everyone’s doing it” That’s what leads to irrational exuberance . continue reading »