The Bubble and Me

As a card-carrying contrarian I should have been elated when the technology
bubble burst five years ago. I wasn’t. I was mostly puzzled at what had taken so long.

When I left the equity research business in the mid-1990s it was, in large part, because the business had become irritating. Admittedly the money helped relieve some of the irritation — six- and even some seven-figure salaries were thick on the ground for we technology equity analysts — but even being paid obscenely well to proselytize about technology stocks had lost its meager charm.

The business had changed. While equity research was never an unalloyed force
for good, it had never really felt like an unalloyed force for evil either. I would kick tires, look at interesting technology companies, and go tell people what I thought — without worrying overly much about what investors and companies thought. Sure, now and then I would have a CEO shout at me, or I would have one of our investment bankers tell me that I really had to say something nice about such-and-such a company (because we’re looking for business), but I mostly ran my own show.

But that all changed by the mid-1990s. While it was nowhere near as bad as it would eventually get in the late days of the tech boom, it was already obvious that technology equity analysts were becoming overpaid PR flacks. Our job was to dress up press releases in ornate prose chock-full of financial ratios and jargon and then parade them around. The ugly truth, however, was that we were pimps for investment banking business: Declining commissions and rapidly-rising technology stocks had conspired to turn us all into technology sluts.

I didn’t like being a slut and I had made some money, so I left. I settled for messing around with technology startups, doing some lecturing, and for firing rhetorical rockets from the sidelines, including a couepl of OpEds in the Wall Street Journal calling the whole thing a sham. Because when I left I was convinced that the top was near for technology stocks. How much longer would people go on buying technology stocks buttressed by butt-head analysts (including me) playing make-believe? (Don’t tell anyone, but I had a fondness for concocting prime number earnings estimates. Shhhh.) Not much longer, I figured.

Well, I was wrong. Netscape went public in mid-1995 and technology markets went from mildly irrational to wildly irrational, and said blissed-out phase continued for another five years. Sure, it took Internet euphoria to keep it going, but the technology boom stayed alive a half-decade after I thought the cancer in the business had metastasized.

The contrarian in me thinks something similar is happening again. There are, after all, a few solar-masses of capital being thrown at technology again, and much associated happy-talk — despite there being no evidence that businesses are spending on IT, and despite it being evident that consumer technology markets are as nasty and fickle as ever. Some people will make a great deal of money, but there an awful lot of latecomers who are already set to lose a lot.

So, am I right? Almost certainly, but then again there is a good chance that I’m once again five years early. To paraphrase Michael Lewis, it really comes down to deciding just how high a price you’re willing to pay to one day say, “I told you so”.