Another Correct Prediction – AirBNB

Another correct prediction: Airbnb raises $1.5B, valuing it at $25.5B

Everything keeps going up, the cries of ‘bubble’ ignored. Looking at $80 billion valuation for air BNB (which would make it more valuable than Priceline), $100 billion uber, and $50 billion Snapchat. $50-100 billion seems to be the upper limit, after which the pressure to IPO is too strong.

This possibly changes the VC game considerably. Let’s say you have a pool of $500 million to manage. Instead of dividing the money among hundreds of tiny companies, which the usual VC strategy, just divide the money among: Dropbox, Uber, Snapchat, Pinterest, and AirBNB (assuming you can invest in these) and then quadruple your money in 1-2 years, handily beating any stock market index. This is similar to the trend in late 2000 after the stock of small tech companies imploded in early 2000 and money flowed into the shares of what were at the time the biggest tech companies like Cisco, Oracle, Enron, Worldcom, and Microsoft. But this doesn’t prove web 2.0 is in the late-stages of a bubble. It could mean that money managers are applying a superior strategy, a sort of evolution whereby less effective strategies are discarded and successful strategies are copied.

There’s still not too much froth…look at how Fitbit, which went public last week, only has a PE ratio of 23 – and this is after a huge pop on and after the IPO day. If this were 1999, its PE would probably be 500, or some crazy-high number.

Way back in 2007 I was probably one of maybe six of so bloggers (yes, that few) who said Facebook was not a bubble when Microsoft bought a $150 million stake, valuing the social media company at $15 billion (it’s now worth $250 billion). In Spring 2003, when I first got into investing and forecasting, one of my earliest stock picks was American Airlines. The stock had lost 90% of its value (falling from $30 to $3) stemming from a combination of 911, the sluggish economy, and overall weakness in the airline sector. The big question was whether American Airlines would be able to reach a concession with the union over wage cuts. With the stock trading $3 or so, I bought shares, reasoning that American Airlines would survive – too many travelers depend on it, and choosing a pay cut over possible unemployment seemed like the most rational choice from an employee standpoint. A deal was reached and the stock surged. Since blogging, I have been telling readers to stay in stocks and that the economy would remain stable, despite the media’s best efforts to scare people into selling too soon.

A major reason why so many experts got 2009 wrong (as well as getting Facebook and web 2.0 wrong) is that they draw upon historical analogies to make predictions, and this often doesn’t work, as I describe here, Ignorance, The 2008 Financial Problem, and the Limitations of Knowledge:

One of the pitfalls of using the past to predict future is that there are often small or overlooked subtleties that result in completely different outcomes. You can understand 99% percent of the financial crisis and economic history, but that 1% is the difference between making a correct prediction and an incorrect one. Sometimes this is combined with a confirmation bias to skim over the subtleties and only choose the data that agrees with the original hypothesis. In 2009, many commentators and pundits predicted that the stock market and economy would enter a double-dip because that is what happened in the 30′s and conditions seemed similar, so logically we would double-dip. Others drew analogies between the U.S. and Japan in that we would have a ‘lost decade’ or two, because again there were so many historical similarities. Both predictions were wrong.

Related: Snapchat’s Huge Windfall and the State of Web 2.0

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