As ever, Warren Buffett puts it best. "If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy," he says. And in bubble 2.0, just like the first dotcom boom and bust more than a decade ago, the world's most
famous investor is staying on the sidelines rather then risk being the patsy.
Not that investors in LinkedIn, the social networking site for professionals, are in any mood to listen to such warnings. After seeing its share price more than double on its US stock market debut this week, its founder, Reid Hoffman, might have expected to see his US$2.9 billion ($3.64 billion) stake take a reality check on Friday. Not at all: The shares opened another 6 per cent up.
"During bubbles, investors stop valuing companies based on fundamentals and instead invest based on the expectation that prices will continue to rise and 'greater fools' will buy from them at a higher price - this process is unsustainable which is why bubbles eventually pop," says technology blogger Chris Dixon. "But when the economic fundamentals are strong, the last buyer can always hold on to the asset and collect a return through the asset's cash flows."
This is true, of course, but it may be a long time before that cash repays the original investment.
Who knows when the bubble will pop?
LinkedIn's trajectory may yet be eclipsed by those that follow it, Facebook in particular, which is due to go public in the next six to 12 months.
"When I look at where we are right now, it reminds me so much of 1999 and frankly it scares me," says one venture capital investor active in the technology sector. "But we are not pulling back."
Why not?
Well, one reason is that no one wants to miss out while the bubble inflates.
Another is that in this internet bubble, the patsies are only just arriving - few companies have yet offered their shares to the investing public.
There is some evidence, though, that the smart money is getting out: Goldman Sachs sold its entire LinkedIn holding this week.
- INDEPENDENT
Dotcom bubble likely to burst
As ever, Warren Buffett puts it best. "If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy," he says. And in bubble 2.0, just like the first dotcom boom and bust more than a decade ago, the world's most
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