I had an interesting conversation recently. The main subject wasn’t at all about trading or investing, but the gentleman with whom I was talking told me something very interesting. He is heavily involved in internet business, Web 2.0 initiatives, and all that. During the course of our chat he told me something which caused me flashbacks.
Apparently, in the world of Web 2.0 (which is basically stuff like Facebook and other user-generated content types of efforts) the attitude among the entrepreneurs is one of worry about getting loads of registered users and then figuring out how to monetize that later. Money is being invested in these businesses with no plan on actually making profits.
I couldn’t help but immediately flash back to the late 1990s when venture capitalizes were throwing money at anything related at all to the internet. Stock investors were so desperate to get in on these businesses and their prospects for growth that it didn’t matter that they weren’t making money, and were in fact burning through capital. That seems to be happening again, which is a scary prospect given the way that whole thing turned out.
Ignore those who say “it’s different this time”. Of course the situation always different every time. It just goes to show how the pattern of human behavior repeats itself over and over and over again. Not that this Web 2.0 situation is quite on the scope of what was going on back at the end of the last decade, but it presents another great example of how hope and greed fire rampant speculation. Inevitably, the emperor is shown to have no clothes, and fear causes folks to pull money out even faster than they put it in. Â
As traders, our job is to identify those repeating patterns. Keep in mind, however, that the timescope of things is shortening all the time.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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