1/ Lessons From The Tech Bubble:

Last year, I spent my winter holiday reading hundreds of pages of equity research from the 1999/2000 era, to try to understand what it was like investing during the bubble

A few people recently asked me for my takeaways. Here they are - Image
2/ Every document hereon comes from my former employer Bernstein Research's internal research archive, which extend back to 1994

Unfortunately, they're not available to the public (even Bernstein's client website cuts off at 2003), but happy to give more details if necessary
3/ LESSON #1: Everybody knew it was a bubble

Unfortunately, the quip "it's not a bubble if everyone says it is" just isn't true

Investors were comparing the internet sector to tulip mania as early as mid-98. Bernstein held an entire conference on it in June 99! ImageImage
4/ LESSON #2: Calling bubbles is easy, making money is hard

In truth, the hard part about the tech bubble wasn't noticing it. The hard part was timing it

Our equity strategist tried in January 99... he was off by 14 months (and another 30 point gap in value vs growth) Image
5/ LESSON #3: Nobody knew the bubble popped until months after it did

Nobody noticed in March 2000 when it finally popped. Our equity strategist (who bet his career on it!) didn't catch on until June ImageImage
6/ LESSON #4: "Tech" bubble was a misnomer... it was really a large cap growth bubble

See the valuation table below, 1 year before the top

Yes, Microsoft traded at 70x earnings. But Coca Cola was 43x. Pfizer was 92x. Every stock here was a disaster over the next 10 years... Image
7/ LESSON #5: Most large cap tech stocks in the bubble had real businesses with strong fundamentals

The internet stocks were a sideshow. In 2000, the software sector had a $1 trillion market cap, 20% net margins, 20% annual growth

The problem? It was trading at 16x sales Image
8/ LESSON #6: Fundamentals follow price, not vice versa

The bubble popped in Q1 2000. Fundamentals didn't decelerate until Q4 2000.

It was reflexivity at work. Lower stock prices = less capex spend = less revenue growth = lower stock prices. A vicious cycle Image
9/ What's the takeaway here?

Be humble.

For bears, it's easy to call a bubble. Anybody can do that. Timing is the hard part

For bulls, it's easy to point to the fundamentals. Historical investors weren't dumb. The hard part is matching fundamentals with price...

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More from @corry_wang

Jun 20
1/ IMO, the most interesting thing about the ongoing blowup of the quick commerce sector - Gopuff, Getir, Gorillas, JOKR, etc. - is that pretty much all of this already happened 20 years ago with Webvan, the online grocery darling of the first tech bubble

A few quick thoughts...
2/ For those who don't remember, Webvan was the first real online grocery delivery startup of the internet era

There aren't really any postmortems available publicly, so this 2001 HBS case study is probably the best history you can read on it hbsp.harvard.edu/product/602037…
3/ Webvan is often described as the ancestor of asset-light models like Instacart, but it's really more similar to asset-heavy models like GoPuff or Getir

They raised $800M in the late 90s - a huge sum at the time - to build a half dozen 300k sq feet warehouses across the US
Read 12 tweets
Jan 18
1/ Every time I hear about the "metaverse" becoming the next internet (ugh), I don't think about the history of the internet - instead, I think about the history of the information superhighway

Aka the half-baked, corporate, also-ran version of the internet beaten by the web
2/ The birth of the consumer internet was arguably in late 1994, when Netscape launched. But something you realize after cursory historical research is that by 1993, virtually every important person in media and tech knew *something* approximating the internet was going to emerge
3/ Important people called it "the information superhighway." The TV and the PC would converge as "interactive television." This highway would deliver you home shopping, videochat, movie rental on demand, and personalized news… not to your PC, but your living room
Read 8 tweets
Dec 12, 2021
1/ Something I think about a lot: when it comes to tech history, it's just as important to not "overlearn" the lessons of the past as it is to learn them at all

A good example: this 2009 Bernstein report on Twitter & Facebook, "The Ruinous History of Pre-Business Internet Deals" Image
2/ In retrospect, investors "overlearned" the lessons of history from the tech bubble. By the late 2000s, the collapse of AOL, Yahoo, and other Web 1.0 properties had "proven" it was impossible to make money advertising on general-use social platforms
3/ The implications were clear. Youtube would never make enough money to offset video bandwidth & storage costs. Twitter would "operate at a loss in perpetuity, or until the next cool web 2.0 social networking concept comes along and Twitter tweets no more" ImageImage
Read 6 tweets
Oct 30, 2021
1/ There's a well known anecdote from The Everything Store about Jeff Bezos visiting Harvard Business School in 1997. The students told Bezos "you really need to sell to Barnes and Noble and get out now"

Less well known: you can read the actual 1997 HBS case study from the class
2/ It's easy to laugh at predictions in retrospect - but with the information available at the time, would you have known better?

store.hbr.org/product/leader…
3/ In 1997, Amazon was 3 years old and generated $148M in sales, entirely in the book industry. Barnes and Noble was 26 years old and was 15x bigger, at $2.5B in sales
Read 10 tweets
Sep 19, 2021
1/ I always joke that predicting the future of tech is way easier than most people think... the hard part is making any money off those predictions

This 2001 paper ("Big in Japan: iMode and the Mobile Internet") is one of the best examples I've ever seen- core.ac.uk/download/pdf/3…
2/ Looking back, the modern smartphone era didn't begin until the launch of the iPhone in 2007

But this paper makes it clear: even in 2001, it was obvious to pretty much everyone that the future of the internet was going to be mobile
3/ Moreover, all eyes pointed to Japan as a template for the rest of the world: in 1999, the Japanese telco NTT DoCoMo had launched "iMode," the world's first mass-adopted mobile internet service. By 2001 it had over 20 million users (15% of the Japanese population)
Read 8 tweets
Jul 6, 2021
1/ In 1968, former ARPA director J. C. R. Licklider published "The Computer As A Communication Device"

Given it was written right before the launch of the ARPANET, this is basically the founding document of the internet

And its predictions hold up remarkably well!
2/ For context: Mitchell Waldrop has called JCR Licklider "computing's Johnny Appleseed." As an ARPA director in the 60s, he basically funded half of the projects that became the internet

This paper was the brainchild of him & protege Bob Taylor, who later led Xerox PARC
3/ Licklider opens straight to the point:

"In a few years, men will be able to communicate more effectively through a machine than face to face."

"The programmed digital computer can change communication more profoundly than did the printing press and the picture tube"
Read 11 tweets

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