I work for non-tech generating 100million+ in revenue. Cushy job, fully remote, good pay and full autonomy with flexible hours working as an IC.
I recently talked to a startup, similar pay, culture would be a better fit since it was mostly techies and I'm a nerd by nature.....but things just got awkward as soon as I asked about their revenue....they were bleeding money and I was told they were being acquired by a big corp. Also, the tone worried me, the confidence the CEO presented early in the call disappeared.
I also tried digging deeper into their business and what they were selling, as I have interest in that space due to my hobbies. I literally didn't see a need for their startup to exist. But I'm just an average developer what do I know.
Across every investment class there has been a trend of buyers needing to become more financially irresponsible in order to participate in the market.
Need to buy a house? bid 20% more than asking, if you don't - someone else will.. in cash.
Need to build a ride-hailing app? prepare to pay people to ride indefinitely.
Need to own a growth stock? prepare to pay upwards of 100x multiple on revenue.
All around, there have been too many dollars chasing too few assets. I suspect the pendulum is swinging now that housing got to the price point where employees demanded equivalent pay increases to housing cost increases.
This is also a central banking fail in so far that there's that much liquidity in the market that can't find a productive outlet.
There's a lot of money, but also not enough concentrated in one spot to do really useful ventures like large infrastructure projects. So instead the money is distorting everything.
Imagine if lending was less cheap for home owners but it was still cheap for governments or really large companies to be able to build train lines or advanced manufacturing or affordable medium density housing.
I see the problem as too much credit is able to be spent with too little focus. So silly stuff is being funded because the money is becoming meaningless.
Yes, you need some level of financial creativity to justify buying into one of the many bubbles. But that's where the timeless Buffett quote[0] on Ted Williams and batting comes in, there's no called strikes in securities markets. Mr. Market doesn't force you to do anything at all, we're all free to ignore the speculation and focus on proper cash flowing businesses at reasonable valuations. The more boring the better (tho there are opportunities even with exciting companies these days), but just wait for the right pitch, no need to force it. You'd need a gun to my head if you wanted me to hold a portfolio of cash burning (even generating for that matter) businesses with valuations based on 5-10 year outlooks.
>The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!,’ ignore them.
...or housing will drop as interest rates go up. And a non insignificant number of folks were over extended in leverage.
I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation.
I know of folks who bought homes using margin loans in their stock portfolio.
If housing stagnates, there will be margin calls, leading to supply shock, and price declines. Especially now that mortgage interest rates have nearly doubled year to date.
Rising interest rates are starting to slow the housing craziness, at least where I’m at. I was regularly seeing 20-27% over asking with limited to no inspections, new listings going in hours. Nuts.
All-cash is basically the new norm. Two years ago that was an issue for regular buyers, but it’s workable now since lenders have jumped into the mix, more and more offer an all-cash option - they make the purchase and transfer it to you under a traditional mortgage. You still have an appraisal gap to contend with, sine they’ll only pay what the place appraises for, but anyone who qualifies for a loan can probably qualify for the all-cash option.
This was driven by extended 0-ish% interest for an entire recession cycle. Unable to get "safe" returns, money chased more dangerous classes of assets and inflated prices.
Inflation and a return to nonzero interest means capital gets to retreat to safer ground, pulling the rug out of stupid unprofitable startups that can only make money with head-in-the-clouds IPO valuation or FAANG acquisition.
It's not irresponsible to bid 20% over asking. Asking is deliberately underpriced, because it is excellent advertising in a hot RE market.
It's irresponsible to bid 20% over what the house is worth (which has nothing to do with asking price), just because you got emotionally attached to the house, and started a bidding war with another person emotionally attached to the house.
Part of this is because bonds have been out of the picture. Bring bonds back as valid investment vehicles, which impacts many other parts of the economy, and we'll see more assets going to "useful" investment like roads, power lines, and so on.
Best explanation I've seen of this phenomenon, why it's bad for all involved parties, and knock him effects. It's focused on place making/urban development, but it lines up completely. https://podcast.strongtowns.org/e/strip-mall/
> All around, there have been too many dollars chasing too few assets.
You can thank the central banks for this. They seem to be too focused on propping up the wrong metrics. Meanwhile the real economy - and the real people in it - are limping like a three-legged dog.
Yet the top layer ignores the messages (e.g., in the USA, Trump being elected, and perhaps re-elected) and persists with the insanity. This cycle - and the associated level of denial - is not sustainable.
Saying that paying 20% more than asking is irresponsible depends on whether asking was a fair price. If someone was always willing to pay 20% more then it wasn’t a fair price in the first place, and really people are just under listing for some reason.
And for these reasons I question the whole concept of money, working for it, and saving for whatever dream. Flood of money can be so easily created but you have to work for it? Then you have to max out on debt, speculate and risk your hard earned funds, otherwise you are falling behind. Central banks have stuffed this one up and I it is a much bigger problem than inflation.
The markets are efficient but they aren’t perfect. In any situation the markets will do the best to optimize but will always fall short of perfection . Since markets aren’t perfect that’s why you can make money by speculation.
I don't think it's housing. It's just that the market had a boom during the bored pandemic times and now that that is over (except in china) the market is readjusting. The market is highly leveraged by psychology over the short term, but in the end even the most exuberant people have to face reality and tighten their belt. Housing will flat line or decrease now as well, since people realize the cost of mortgages is too damn high. Also with lumber and other prices falling that will help new home builds. If Russia ever stops the attempted genocide of Ukraine then markets will probably soar as gas prices come back down instead of increasing.
Tangential. But I work in corporate finance. I'm generally privy to a large amount of information about the companies I work for. If there's something I don't know, I ask for it and people share because of my role. If I'm interviewing, we discuss a lot more than most people would about the health of the company that I would be joining. It's normal.
That said. I'm obviously heavily biased but I have realized MOST non-finance employees know very little about the financial health of their employer or even how the business model operates, or even what is the current/future strategy of the company.
When something MAJOR is announced, M&A/leadership changes/etc, the questions the room typically ask are: 1) will we still get 401k match 2) will we get fired 3) will the office relocate. People don't really care too much about the company, they care about how it's volatility impacts them. I don't think it's such a bad thing, but just pointing it out. In startup land, volatility is huge and the highs and lows can occur with rapid frequency. You have to be an assessor of risk when changing any jobs and this is part of it.
I may be unusual but I've always found it prudent to ask my CEO about things like rate of corporate growth, funding and customer revenue generation, M&A, etc.
Because if I am a vesting or fully-vested employee, then that's my own future at stake. The 401(k) can be dwarfed by many times by a successful stock worth millions, or, in a badly run or positioned company, the stock could be worthless underwater paper shares and I become dependent exclusively on the 401(k) for my sunset days.
The financial literacy of many workers is low though. They don't understand what options are or what it means to really be a shareholder.
When I was at Cisco — I'm talking in the 1990s — we used to describe what we called "stockholder angry." This was when a fully-vested employee heard a VP or above talking about some idea so stupid it would literally cost the company a penny per share or more. That's when the old dogs would get "stockholder angry" and propose alternatives, or ask people to stop ideas that were retrograde for the sake of the company's valuation. Because we knew what a penny per share meant to each of us.
I believe it is valuable for employees at all levels to be able to know the state of their company's health, and then, with an informed mind, be able to voice their opinion on the fate of their organizations.
It’s funny as that was my experience interviewing with companies between 1998-2000. Just insane business models but brazen confidence in themselves.
I remember interviewing with a company in 2000 that had burned through like $40 in two years. This was New York and they hired IBM. I don’t remember their product but it was stupid. They had paid IBM to build their own custom app server for Java because their requirements were too specific for WebSphere that IBM made. They built their own internal Java app server from scratch.
So that was stupid.
Also the interview was on a Tuesday or something and they said that they were out of money on Friday but were confident they would get more money on Monday.
They wanted me to start immediately and when I turned them down because of the funding, they asked if I would start on Monday.
It was such a surreal experience that a whole organization could be so crazy.
> Also the interview was on a Tuesday or something and they said that they were out of money on Friday but were confident they would get more money on Monday.
> They wanted me to start immediately and when I turned them down because of the funding, they asked if I would start on Monday.
Is is straight out of a comedy sketch, I feel like you could take that to an open mic night and kill with it.
Building a custom server does not sound so crazy. If you ever used Websphere you would probably think the same. I was at one of those crazy Internet startups you referred to and we ran a trial of Websphere for a while. It was some of the slowest, most resource-intensive software I've ever used. By the end we all referred to it as "the pig."
Interestingly, I've heard many instances where interviewees asked startups about their revenues and the startups just wouldn't tell them, saying that it's growing, or some other vague nonsense. Even in the case of inquiring about the amount of equity one gets, many startups would not tell them the actual percentage of the company they'd get, instead opting to tell them the number of shares, without actually telling them the total number of shares. Well, 1000 shares out of 10k is very different than 1000 out of 10MM.
This is a huge red flag in my eyes, of not being open enough to see the books. It signals that something is quite wrong at the company, and even if it weren't, that they are not truly honest with their employees.
It also comes from feeling financially secure enough to be comfortable asking those questions. Early in my career I wouldn't have, but at this point I have enough money that I can afford to be more discerning.
Why? I work to exchange labor for money. They hired me because I generate more value than they are paying me. The company doesn’t “care” about me. It’s purely transactional.
If I got hit by a bus tomorrow, they would send flowers and “thoughts and prayers” to my wife and have an open req before my body got cold.
I agree. I've had a couple of stints as a manager, now as a CTO for a small startup, and it's giving me so much insight into thinking about engineering from a business perspective. As an IC it's hard to get that birds eye view, but it's possible.
If you're going to be paid in equity and not asking those questions, unless it's a publicly traded company (where you have these answers ahead of time) or you are getting compensated well above average in cash equivalents, it would be just plain irresponsible to not ask those questions.
Even if you are getting paid an extremely good salary, who wants to start working for a company that's potentially months or a year from becoming insolvent? The fact that this might not be standard due diligence as suggested by your comment is mind boggling to me.
I'm average and have always asked these questions :) When I got my CS undergrad I almost had a minor in business, so that side has been an interest from the start.
How the company is doing, what is their core business, and how will my position fit in that business have always been key questions for me when interviewing a company.
I don't really "care" about the business, not in any sense similar to the founder or CEO at the very least, but as a contractor who usually works long-term for one client, I always make it a point to ask what their runway is during the interview process as that will pretty clearly tell me how long, in the worst case scenario, I will have this client for.
Same thing happened to me. There's a company in Dallas that had a website that basically presented users who were searching for a product type with a list of products along with their ratings. Apparently they were supposed to make money off of affiliate links. The website was buggy and slow, and also... Google does that already.
So they pivoted, and now they've aimed their engine at CBD reviews or something. I still don't see the point.
I wish people would just build solutions to actual problems they have that other people also confirm to have.
Not everyone is a visionary like Steve Jobs or whatever, and that’s okay. Just build something that solves your problem and helps others who also deal with it.
Is there any growing startup that's not bleeding money? Isn't what the seed and Series A and maybe B funding is about? After series A funding I'd expect some revenue stream, but not enough to pay expenses, after B series, they should have a plan to profitability and some proven customers that show that they can actually get that revenue, and after C I'd expect them to be executing to that plan.
If bleeding money scares you, then a startup is probably not the right fit, a huge number of startups fail.
There are. It happens when you hit high level of product market fit with a lean team and don’t go on a massive hiring spree after but keep growing the team at a measured pace.
I think Github, Notion, Retool, Slack, probably Figma, hit revenues quite quickly as they launched and became profitable or at least close to breakeven.
You're right - it's pretty definitionally hard for businesses to be profitable early on. The problem is that this unprofitable period has been extended towards ludicrous ends.
It used to be that you spend your Series A and B figuring out the business, and from Series C forward you've got your unit economics dialed in and are just pushing the "growth" button as hard as you can.
Nowadays you get all the way to IPO without ever achieving positive unit economics: Uber, Lyft, DoorDash... You have companies raising (or trying to raise) Series E, F, G while they lose money on every transaction and make it up in volume.
I suspect OP is talking more about that phenomenon - companies that are way too far along to not have positive unit economics on their core business.
Yes I am sure a lot of companies are building things that aren't required. But there are so many things were indeed better solutions are required, and if they exist would be worth investing in.
Replies so far are responding to the startup path to profitability question, but just how good are the usual IT jobs in companies where that's a cost center??
In all the ones I've experienced or looked at, not hardly as good as tech companies pre-FAANG, your "cushy job, fully remote, good pay and full autonomy with flexible hours" strikes me as an uncommon situation.
I was in the same boat as you. I was about to accept an offer, then I had a chat with their CTO and I asked some hard questions about their strategy (compelling product - but their vision was becoming a "platform" as a lot of startups do). Think I threw them for a loop and didn't get a great answer. Ultimately changed my mind on joining.
Knew someone at a Startup with a product & storyline that would make for a comedy fiction show.
Their CTO called me, enjoyed a convo, and offered me some untitled job - no interviews, no game plans. But full on salary match, equity, whatever… (I make mid 6 figures)
But I’ve been so entrenched in real business that the whole thing just seemed completely off to me.
What profit does your company generate? I wouldn't call anything 'cushy' or stable until there's a reliable way to cover all expenses and investor expectations--especially given how badly company have exploited Goodhart's Law with respect to revenue.
Back in the day, there was an inherent understanding that a stock price is supposed to reflect "the fundamentals" - present value of the company + future earnings. And of course there was some amount of speculation around future earnings, but for the most part companies at least tried to be profitable.
But if you look at the share price of like, Tesla - it's completely insane. There is no way your slice of the company is worth that much. The stock market has been behaving like a pyramid scheme, where everyone assumed there will be more money entering than leaving any given stock.
Tech is a pretty egregious sector because of how many business models basically boil down to "we don't actually need to make money if we have a desirable stock". In the long run, I don't think we'll be worse off if the next generation of software companies actually focuses on making products people want to buy rather than play games with DAU and user acquisition and etc.
Tesla made more money last quarter than Ford, GM and Toyota. Toyota made 10x the number of cars as Tesla. Tesla is growing vehicle production 50% YoY, while growing profit even faster (having barely hit economies of scale yet). Tesla has a backlog of orders approaching a year in many regions. Everyone else is losing money on their EVs and can't make them in volume production, can't find the batteries for them, because they started 10 years too late. That's the reason for Tesla's valuation, it's pretty simple.
Whether you believe the competition will catch up, or Tesla will fail for some other reason is besides the point. I'm just trying to show that the current valuation is not "insane" given current trends, there's a very real logic to it and not (completely) FOMO.
Correction: Toyota's earnings were higher than Tesla, it was operating income that was higher (remembered it wrong).
I'm not sure where you are getting those numbers from. Ford had $37b in revenue Q4. Tesla had $16b.
Tesla is an impressive company that's managed to finally be profitable. But currently their market cap is higher than all other auto manufacturers combined.
> Everyone else is losing money on their EVs and can't make them in volume production, can't find the batteries for them, you do the math.
That's the thing, this space is getting incredibly crowded this year. Kia/Hyundai, Ford, and VW are all putting out very impressive mass-market EVs that are selling like hotcakes.
Looking at a single quarter is not a great way to compare large companies. Even looking at just a single year is not a great way, but for comparison, in 2021 Tesla had revenue of $54 billion and net income of $5.5 billion. In 2021 Ford had revenue of $136 billion and net income of $17.9 billion. Toyota had similar net income as Ford in 2021.
Yes, in the most recently reported quarter Ford lost money. And in previous years Ford has also lost money. But so has Tesla.
Looking at Tesla as a traditional automaker is not fair to Tesla. They don't want to be a traditional automaker, I get the impression they want to be more like General Electric was back 50-100 years ago, making all kinds of things and being rather innovative.
All of those things can be true and Tesla's stock can also be over-valued. A rapidly growing and popular company doesn't justify any arbitrary valuation.
It's not about revenue, it's about valuation. The revenue can be whatever you want, the valuation determines long run returns.
Tesla could be priced at 20x PE or 100x PE and be the same company. Your returns will be vastly different between the two scenarios.
OPs point, which is pretty obviously objectively true, is that valuations far exceeded future yields by any fundamental valuation metric. Tech has been valued as if every company will be a pseudo Monopoly like the FAANG companies, which is very unlikely to be true
I don't know about Tesla production forecast and how its stock value can be interpreted but there is something interesting that Marques Brownlee said few days ago about pre ordering cars [1]. Basically, if people that put down the $250k for a Tesla Roadster founder edition to finance the company and for a product they still don't have into Tesla stock the would now have $4.5MM.
Not complaining about Tesla stock price as it has the price that people is willing to pay but to me this is definitely a redefinition on what people care when deciding where to invest.
Can you link a source for the Toyota vs Tesla claim? From what I saw on the reports it looks like Toyota had way more revenue and net income. Maybe I'm interpreting it incorrectly
Even if that all were true (it's not), Tesla could be the most important and revolutionary car company since Model-T era Ford and _still_ be insanely overvalued. Before their recent stock slide they were worth as much as every other major manufacturer _combined_. Their P/E ratio hovers around 300. Mercedes-Benz hovers around 5.
Tesla’s source of profit is mainly from 2 things:
- they’re selling cars that have quality of $25k cars for $60k
- they’re basically a first manufacturer that sells Chinese made cars to western world at scale (all their other operations are either not ramped up or unprofitable)
Power of their brand is insane. But they seem to be mainly raiding it and diminishing it. Music will likely stop one day.
If average Jane, who is not a raving Tesla fan, wants to spend circa $140K on an EV, and she has to choose between the Mercedes EQS 580 and the Tesla Model X, which one would you say is the no-brainer (better value for money)?
That is the future of Tesla. Increasing competition by better products offered by manufacturers with far more experience in manufacturing vehicles, and far superior dealership, service, and parts networks.
At both price points on the link the Tesla vehicle metrics are dominant over the Mercedes vehicle metrics. In fact, the $110k cost Tesla has better metrics than the $130k cost Mercedes: it is faster, accelerates faster, has higher horsepower, and has higher range. If the average Jane has $140k and wants the best value for money it is really hard to see why they would choose the objectively inferior car according to most metrics. They could save $30k and still have a better car.
I really don't understand, at all, how you can conclude that it is a no brainier to get a Mercedes? It seems like a really ridiculous conclusion?
Just clicking around on the site and trying to do the order shows you are wrong that Mercedes is far superior on non-car related things. The dealership model is famous for its failings. Car salesmen have a notorious reputation. The website for Tesla lets you put in a purchase order within three clicks, no interaction with a dealership. The Mercedes purchase workflow had more like seven clicks and it resulted in getting an interstitial telling me to talk to a dealer about how the car wasn't going to have all the features because of chip shortages, that the price would change as a consequence of that, and directed me to talk with a dealership.
How is that better? How is not giving me the listed price but making me go through a high pressure sales channel superior to just letting me buy car the now? I don't understand at all how you can say that dealership model is far superior. Is it right in your eyes that someone poor at negotiating should have to pay more than someone who is better at it? I don't get it. I don't understand at all how you can think Mercedes is providing the better experience.
It is indeed a no-brainer. The Tesla wins hands down.
I've owned many very good German cars for the last 30 years and loved them, but my Model Y makes them all seem quaint and obsolete.
--Electric cars don't need dealers. I want to be able to buy a car online without spending an hour kicking gravel and haggling with some commissioned salesperson over the price.
--Electric cars don't need as much service as ICE cars, and it doesn't need to be done at a dealer's high-profit service bay. When my Tesla needed its rear seat coat hook replaced, a technician drove to my house and replaced it. For free.
--Electric cars need very good batteries. Tesla has a 10-year, several-billion dollar lead over every other car manufacturer on battery technology. Everybody else is playing catch-up. Ditto for motors and single-piece castings.
--Electric cars need very good UI software. The Germans make the second-worst automotive UI software of anybody (only the Japanese do an even worse job). Tesla's UI has elements I don't like, but every other car's software experience is so bad it's not even worthy of criticism.
Mercedes, Porsche, and Audi are all offering electric cars with specs inferior to Tesla at much higher prices. This will be unsustainable after they stop coasting on their reputations and the supply of German car snobs who refuse to try a Tesla dries up.
I'm sure the Germans will eventually catch up; Mercedes invented the ICE car after all. But Tesla invented the modern electric car and it's a whole different beast.
Current price on your link is ~$100k not $140k. It was much more confusing to use the first site, but click through I found something that was also about $100k when you chose the budget options. Meanwhile, for all numbers that both Tesla and Mercedes list publicly the Model X has better numbers. For example, in horsepower and 0-60 the Tesla does better. For some numbers, the Tesla lists the number - like range - but the Mercedes doesn't.
Declaring my bias: I think this is because they are much worse in range. Now looking up the numbers: 340 mile range for Mercedes. 350 for the Tesla. I was wrong. Tesla was only better, not much better.
Clicking through to order takes several clicks for Mercedes. Along the way of the happy path toward immediate purchase an interstitial pops up and warns me that the price will be changed if I try to order because they don't have the supplies to service the order. Tesla by contrast just lets me order the car with a delivery date in January of next year.
To say your post is deeply misleading as to who is obviously the no-brainer in value for money is an understatement.
I'm not any kind of stock valuation expert, but I figure a big part of Tesla's share price (and GME's for that matter) is just the natural market consequence of too many short positions and someone calling their bluff. The current valuation might not be rational, but that's beside the point. A lot of money was invested betting that Tesla would fail (or at least, the stock value would fall), and the consequence of them losing the bet is that they have to buy stock at whatever the price happens to be, thus driving it higher. I see it as just the market correcting itself, not some inherent bug in the system. (There's an argument that maybe allowing people to short stock in the first place is a regulatory bug.)
> But if you look at the share price of like, Tesla - it's completely insane.
So was the stock prices of amazon, google, etc. You don't expect companies that are opening new industries/businesses to trade like AT&T. You don't expect these companies to pay dividends.
> Tech is a pretty egregious sector because of how many business models basically boil down to "we don't actually need to make money if we have a desirable stock".
Tech companies are some of the most profitable companies in the world. Apple, google, amazon, facebook, etc print money. These companies make more cash profit that your companies with "fundamentals" make in revenue in a decade.
> I don't think we'll be worse off if the next generation of software companies actually focuses on making products people want to buy rather than play games with DAU and user acquisition and etc.
That happens in all industries. From finance to hospital equipment to real estate.
If the bubble is popping, it isn't a tech bubble that's popping, it's an asset bubble that's popping.
Back in the day, there was an inherent understanding that a stock price is supposed to reflect "the fundamentals" - present value of the company + future earnings. And of course there was some amount of speculation around future earnings, but for the most part companies at least tried to be profitable.
Yes. And after each crash, people have to re-learn that.
First off, it isn't irrational to allocate an excessive amount of capital to sustainability. The meme that this level of provision is short-sighted is myopic to the extreme, because obviously over the long term it is failure to be sustainable, not being sustainable, which is myopic. Perhaps it is overvalued, but calling it completely insane goes a bit too far.
Second, you are obviously right that the present value of their assets doesn't justify their current price, but it is hubris to try and claim that their is no future in which their revenues can justify their increased valuation. Think ahead to the future while skipping the steps to get there and we are obviously incredibly likely to exist in a world in which AI and automated labor is commonplace, in which energy is provided through renewable means, and in which transport from point to point is handled by electric vehicles. It is not __completely insane__ to think Tesla might play a large role in this future. It is quite reasonable to expect they would. Their present course has them explicitly targeting playing a very large role in that sort of future. They have been making progress and inroads in playing that role. They are on track to play that role and can play it if they execute successfully. Whether they do, that is another question, but whether the potential exists? It certainly seems to exist.
A lot of times people point at automakers when they try to justify calling Tesla overvalued. The idea that Tesla wouldn't be larger than that industry is silly. That industry spent billions on building out manufacturing capabilities. They took on debt in order to create products which the market doesn't believe will be viable in the future. The projected value of those companies has to account for that and obviously they aren't going to be valued as highly as they might be if they weren't burdened with those liabilities. Perhaps you don't know this, but a few years back legacy automakers were struggling with dealers who would intentionally sabotage the ability to sell electric vehicles by giving test drives in vehicles which were intentionally left without charge. Perhaps you don't know this, but dealers have laws in place to protect them from car companies which force legacy car companies to use them despite the way the perverse incentives could spell the death of the ICE auto industry. There are real structural reasons to value these companies as being less able than Tesla to flourish. Thinking this is the case isn't completely insane.
The standard explanation is that the market tends to price in future gains, and Tesla is seen as having far greater growth and market domination potential than the other brands with small P/E.
Over a long enough time frame the stock market and even the whole economy behaves like a pyramid scheme as it is dependent on new generations to be more people than the previous one.
This is not true. The stock market is usually valued after the dividends it can pay over a certain number of years, somewhat between 10 and 20. It’s not infinite. If no further grow comes that’s it and the stock keeps it value and will keep paying dividends for the foreseeable time, and has for already 100 years. Sure investors ask for growth in their communication, but the actual thing they are asking for is a better performance than the rest of the market. You could say this bottoms out at 0 but recent event have shown that low negative interests are possible, because stashing cash has a physical cost.
Many economies can still work well without population growth, other fail despite population growth. If that was the case that population dictates GDP, then investment choices would be very easy.
That really only seems to be true when you allow unchecked mergers and acquisitions, because once you've eliminated competition continuing to grow the market through innovation is almost impossible.
I'm not convinced this is some natural "tech" bubble. This feels like an M&A bubble to me.
I think you're right but I don't think it has to be that way.
Like others, up until a few years ago, I was a Keynesian. But then I realized that if you allow inflation you're not just "rewarding investment", but you're taking non-participation off the table -- and that's a big problem. Because then people participate in markets not based on value but because they have no choice. That means that you go from value investing to "growth investing" -- which is another name for pyramid scheme and people unironically saying that "the market always goes up."
That isn't true. Otherwise when the wheels come off (recession/depression) then the market would never recover as it's "just a Ponzi scheme". there is real value in the market and until some communist or anarchist can provide a reasonable solution that doesn't depend on the general human being altruistic 100% of the time I'll just keep going with the market and count on avarice. I'll trust in the general sense of fairness that most humans seem to have even if they aren't altruistic.
I don’t understand finance. But with tech I can often see from a mile if something might happen, I don’t have ideas, but I understand „this solves a problem“ or „this is high quality“ versus „this is made up“ or „someone else will do this better“.
In my opinion the issue with the stock market is that it is often finance driven and too drawn away from the actual work that is being done and the actual needs and problems potential buyers have. And this problem is specifically worse in tech.
I wouldn't even call it an `understanding` more just a `reality`. Markets can stay irrational longer than you can stay solvent and the last 10 years have been an amazing case in point, but they can't stay irrational literally forever.
There's a gravity to it. At some point whatever is inflating the values artificially is going to hit some kind of force against it and people are going to want the underlying cash flow. It would be the equivalent of a sort of financial perpetual motion machine if this never happened. I'd argue that's not an probability but something more like a law of physics and is actually literally constrained by the laws of physics (it requires continual population growth, consumption growth, and growth of energy use to keep some of these valuations rising)
I find it funny that crypto supporters will cite the fact that the stock market is acting like a pyramid scheme these days to justify the fact that crypto is no different.
Yeah, that's not the defense of crypto that you think it is...
just want to add point that Tesla is not just the car company, they are into energy (battery, panels etc), AI, robotaxi etc areas as well, that could be one of the factor in higher valuation.
They never showed the fundamentals. There are famous money losses throughout the 20th century. [You can google the charts, or check Graham's book or the biography of Buffett, where he went around avoiding such traps or buying failing companies on the cheap and turning them around by cash infusion.] And of course the infamous example of the Tulip Bulb in 17th century.
Companies need to take risk to innovate. A lot as you indicate, and I totally agree, take it too much and doom themselves by never figuring out how to be profitable.
These days simply everything that innovates is "Tech." (Now it's turning similarly to sustainability.) How is Tesla "Tech?" It brands itself as that. By that thinking a lot of other automakers should -- and the autopilot doesn't cut it -- just people don't want to see Toyota stock as "Tech."
The other thing with "Tech" is that if you don't keep pouring your revenue to take more risks until you dominate over others you will die. So fundamentally, all "Tech" stocks strive towards domination via innovation and growth. Amazon (book seller I know) spend the first part of this century with a pretty bad stock and getting tax credits by investing everything in itself and being cheap extremely aggressively. A lot of "Amazons" did not make it.
P.S. If they gave me a 10 year put on Tesla on a sane price I would take it. Alas nobody is taking that bet on the cheap.
P.S.2. The funny thing is it is a self full-filled prophesy. Tesla has the market capital to control debt to try a bunch of stuff until it makes it.
P.S.3. Fundamentals can be used to increase dividends or do buybacks s.t. the stock price will stay/go up. That is the correlation.
P.S.4/tl;dr: The stock market and any commodity market are pyramid schemes -- people get in to make money.
Tell me you know nothing about investing without telling me you know nothing about investing. Tesla is very undervalued ATM. Just look at their P/E, growth rate and PEG. Trailing is already below 100 and they are growing profits close to 100% annually.
It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Great Depression. 2010s saw an unprecedented rally of tech/growth stocks, fuelled by cheap capital. Growth at all cost was the mantra, hoping companies will turn profitable at some point á la Amazon. Uber's CEO hit the nail on the head when he wrote "The average employee at Uber is barely over 30, which means you've spent your career in a long and unprecedented bull run".
There were signs of rate hike in 2019 but COVID forced Fed to create trillions of $$. Which only added fuel to the fire; equities, housing, crypto saw unbelievable growth.
However the signs of inflation were clear in early-mid 2021 they were hoping it to be transitory. But when the inflation data came in late 2021 it turned out to be multi-decade high leaving Fed with no choice but to raise interest rates for the first time in more than a decade.
Which brings us back to growth companies. As Uber's CEO candidly stated "Channeling Jerry Maguire, we need to show them the money". 2020s will be all about cash flow and efficiency.
On the other hand expect to see cool innovations as it requires genuine scarcity to look for out of the box solutions. While Amazon's stock soared in 2010s their core tech was being built in 2000s while they were relentlessly driving for efficiency.
It's fascinating to trace the genesis of present crash to Fed's policies post 2008 crisis. The interest rates were kept artificially low to prevent another Great Depression.
I think 2008 and 2001 basically saw "cut some fat and reflate the bubble" as the standard approach. I expect the same approach this time though I can't predict if it will work. This is basically the method of Greenspan and Bernanke, explicitly said that the Great Depression didn't have to happen, that juggling interest rates could have solved it.
The thing about these situation is that by just killing weaker players, the Fed allows the basic imbalances to remain and increase (income inequality, monopoly positions, speculative enterprises, etc). The Great Depression was the single biggest equalizer of income, I think in US history and certainly in the 20th and 21st centuries. Not that I'd be in favor of such a thing.
"The average employee at Uber is barely over 30, which means you've spent your career in a long and unprecedented bull run" - quite an American experience this. Many across Europe and the rest of the world were in a recession until 2014-2015. It was difficult to find a job out of college even with masters degrees in comp sci from tier 1-2 unis.
Inflation metrics show that the economy post 2008 was in fact under stimulated, which is why the recovery from the financial crisis was so slow. The recent COVID-related stimuli are what went too far.
I don’t know if I disagree but we were also in a really bad position if we didn’t do it. The stimulus did a lot of good, I saw the first hand benefits of what it did for people who really needed it.
The market is having issues now not because of inflation being kept low but because people panic when everything isn't going smoothly. The supply chain and WW3 have investors scared, and now they're panicking and leaving the markets and taking their profits with them. Others panick and get what cash they can. Some will buy low and it'll level off soon probably. I think this is more of a pull back than a recession. Generally the economy is in good shape it's just the speculators are bailing from the market.
By effectively guaranteeing the market, the Fed made stock and bond markets more "money like" and so it didn't even have to overtly print money to create a money -printing-like effect ("the wealth effect") even though they also did print money to prove they were serious. So effectively we've had inflation for a while but most of it was inflation of asset values.
If the Fed talks the market down and people sell, it will have destroyed money without other harsh measures. That doesn't mean there won't be more pain other ways also.
It's almost entirely because of inflation. Persistent inflation raises the discount rate (10y treasury yield), and devalues all other assets.
Why would you buy a 100x PE company (1% yield) when you can get 3% guaranteed today? Even growing at double digit rates, how many years just to match that return? Except many tech companies were 100x PS not even 100x PE. DDOG and NET are two examples.
If the 10y runs to even 3.5-4%, and stays there, we're likely to see a 40-50% haircut in markets.
2010s saw an unprecedented rally of tech/growth stocks, fueled by cheap capital.
Correlation does not mean causation, as it's commonly said. Interest rates were high in the 80s and 90s yet tech stocks boomed. Tech stocks did so well because they make so much money. Facebook earned $40 billion in profits for 2021, 3x Walmart. Google makes even more. Also, market dominance and moat factors working to big tech's favor.
People said this was the "best time ever to get funding" for a startup. I disagree. In my view, it was the best time ever if you played a particular game and had the right connections.
I pitched an idea to a VC, which I had a prototype for, looking for $100k. He liked it but wouldn't fund because I didn't have a solid business plan. Fair enough, I need to find a business partner. But then he told me something about how I have to imagine that it's $100k of my money. I need to respect it properly and ask myself: would I give someone this money so easily? Meanwhile he had his hands in various bullshit crypto (not hating on crypto, just the projects) defi startups.
I thought it was absurd, of course I don't respect your money: VC firms throw $250k+ around like candy to people who happen to give a specific quasi-Silicon Valley impression or are in crypto. You're telling me you can't spare $100k? Also, I haven't seen a single "promising" startup actually be profitable, except those ones made without major funding.
This has all been some kind of weird ass circus for years, I'm glad the bubbles are bursting.
That's not how it works. You're not the only person asking this VC for $100k. A thousand other people are, too. A policy where he spares it for (what he considers) a bad investment like yours means sparing it for all the other bad investments, too. That would cost a lot more than just one check.
I'm saying that he was already neck deep in bad investments, which he happily funded. That's the main point I'm talking about. I'm not saying my idea deserved investment, just that this whole industry has been full of bullshit for years.
I hate SV culture, so not one to WK or make excuses for it, but when you have as much money to throw around as he does, you don't have time to deal with requests for pocket change.
Look at your own investment portfolio. Are you investing $1 at a time in fractional shares of a million different stocks, or investing $1000 at a time on a smaller number of stocks/funds you expect to have solid returns? (You think his crypto bids are misguided. Maybe you're right. Not your money though.)
If you're certain about your product, you don't need an investor. You need a small business loan.
The former strategy is actually the better one in the long run. There are a bunch of economics papers showing that on average the vast majority of active fund managers loose out to precisely the strategy you describe (although the instrument used to hold the shares is not usually owning fractional shared personally but rather shares in a mutual fund or an ETF)
What's your project? $100k seems like an odd amount of money to ask for, to me. You can't staff up very much with that, but it seems like a lot of money to pay for AWS/hosting-type bills when you're just starting out ($10-30k should be more than enough). It only makes sense (again, to me) if what you really want is access to the VC and their network. But again, I don't know shit about VC and angel investing.
It was odd, but my envisioned development window was about 3-4 months (planning for 6) and I had potentially high upkeep after launch ($500-$1000pm for production ready servers). I could have found a co-founder or two and funded them for that period as well. So it would have been just enough + a buffer. At least in my mind. I realize you need more runway than to just get to launch and survive 2-3 months now.
The idea is a service that could open the black box of online video content. Right now you search for something and get the whole video as a result; if it's a 3 hour long podcast you're going to be doing a lot of seeking for specific information. I want to index and enable deep visualized search through video libraries and in videos. Basically splitting videos into linguistically salient topics, keywords and entities. That would allow you to analyze and visualize content (YouTube channels, videos, etc.) to find interesting information. Good for researchers and people looking for something specific, or people wanting to find new content (relationship graphs).
I think there is some notion that VCs are these rational, brilliant people who are making money hand over fist investing in the best projects. The reality is that many VCs do not make money and invest in tons of bad projects all the time.
Why would they invest in bad projects? Because they are humans who happens to have a crap ton of money. As humans, they're susceptible to FOMO and hype. They are susceptible to things like first impressions, a good slide deck, a good sales person, etc.
All this to say is that it might be the VC, it might you, or it might be your project. Who knows. This is why many founders end up pitching to 30-40 VCs because sometimes it's a numbers game.
The whole VC funding thing is a game that you have to learn about and crack. The easiest way to crack it is to show you have growing revenue. The next best thing is to show you have growing users. If you do not have growth, then you'll just have to hustle and put on your best sales game.
The idea that you should treat VC money with the same level of
frugality as as your own personal savings is preposterous. Sounds like a petty, inexperienced VC.
Yes, exactly this. And since you aren't chummy with the VC, even if you had a business model, you would be rejected "because you don't have revenue" yet. Fuck that noise. The V in venture is supposed to mean you're supposed to take risks.
SV has lost its soul. A VC that respected tech nerds would see your technical idea, (maybe) discount the investment, and then get on the phone and help you find a business partner that will take you all the way (and give you first right of refusal on assholes).
All of those things are your job as a founder. VCs don’t have enough time to help everyone who asks them for $100k, nor do they really have time to write $100k checks in general. They should be writing $2-50M checks and hoping for a 20-100x return on one or two companies per fund. That’s the nature of the game they play.
I don't think we need the latest Cloud/AI/ML/Crypto/Web3.0 bullshit to spin up fuckedcompany.com again.
I remember thinking in ~2015 going to conferences that this shit was never going to last. Then around 2018 driving (sitting) on 101 listening to advertisements for "C3 IoT AI" on NPR thinking, could a company jam more meaningless buzzwords into a single company name? For shits, looked up their stock just and its down 85%[1] since it's IPO. ofc.
To anyone who hasn't lived through a .com explosion, hold on to your butts.
Any time I ask on some financial forum about moving a chunk of investments to cash I get told that would be stupid, don't try to time the market, and just keep buying.
I would have saved myself a bunch of losses if I had done it when I was thinking about it.
When you have invested in something, did you do your DD or did you do it because everyone else did it?
I would recommend a book called "the intelligent investor". I also recommend low fee mutual funds that track the market as the default thing to invest. Once you educate yourself more you can make more sophisticated investments.
I also don't have anything against speculative investments. Just don't call it investing. It's gambling and it's fine as long as you know what you are doing and are okay with basically losing most (everything) you put in.
“Don’t time the market” is stupid advice. The problem with that advice is that virtually every action you may or may not take is a form of timing the market. People going all in “now as opposed to later” are timing the market. Dollar cost averaging is timing the market. Staying in the market instead of selling is timing the market. People encouraging you to stay in the market because if you sell, that’s “timing the market,” are bullying you into adopting their own strategy for timing the market.
The caveat to "just keep buying" is that you shouldn't be buying individual stocks. As a retail investor, the best you can do is get lucky and confirmation bias yourself. Acknowledging you don't know what you're doing is the first step to success.
Same. In December I had the urge to sell a bunch of stocks for the sake of cash and peace of mind because the whole market seemed wildly unsustainable. But the "don't time the market" kept being shoved in my face by friends and family. Who could've known /s
> I would have saved myself a bunch of losses if I had done it when I was thinking about it.
Or, alternatively, you might have cashed out when you thought you should, then completely missed the bottom trying to time it, then sat on cash for years, watching it lose value to inflation anyway.
I sold off a large pile of stocks for tax reasons just before the end of the UK tax year. That also turned out to be roughly the top of the market. So maybe you can time the market, but only if you're not trying to time the market?
Keeping your money as cash is also an investment. It's not a guaranteed value preserver, inflation can eat it. So in the end it comes down to trying to predict the future, just like everyone else is trying to do. There is no guarantee, cashing out can make you lose or make you win.
I remember thinking in ~2015 going to conferences that this shit was never going to last
it's still going on. Facebook & Google are still worth a lot more than they were in 2015. The difference nowadays is that the largest of tech companies are much more profitable and dominant.
I almost got offer from DoorDash, with obviously RSU as one of the compensation. Eventually didn't get the offer because they said I didn't pass leadership interview. Apparently I was interviewing at one level above I thought I was interviewing (the recruiter messed up).
Anyway, I accepted an offer from a hedge fund, comparatively similar, but all cash.
Now I feel that I am glad I accepted the hedge fund offer.
I don't have a property, not looking to get one due to HCOL high property prices and high interest rate.
My assets are mostly crypto and total stock market index. I think I'm good with my crypto investment for now (already filled my goals) so I am thinking to get more stocks.
As someone with just cash compensation, what can I do in this downturn to make a lot of money in the stock market? Maybe I just stick with the old boring Apple.
Since you work at a hedge fund and are getting all cash compensation just put part of your paycheck into some ETFs every month. Someone else recommended the bogleheads forum which is good advice. If you were able to time the market you wouldn't be asking on HN for advice so just assume you can't time it and invest a set amount from every paycheck. You'll miss the bottom but you'll probably come out ahead of any other strategy you'd choose.
Seriously. Unless you're looking to gamble, open a Vanguard account and pick an index fund targeting your retirement age or go with one that tracks S&P (VOO).
Vanguard's fees for index funds (esp Admiral shares) are absurdly low, to boot.
Yeah this would be my first question too. Even beyond that, many (most?) hedge funds have an employee investment scheme where employees have a special vehicle via which they can invest into the fund performance without having to meet the often egregious criteria (e.g. not everyone has $100mln lying around in cash to meet minimum investment thresholds).
I just left a hedge fund to join aws. Even the aws is famous for its worst WLB and toxic culture, it is much better than the hedge fund I worked for. Knowing many friends switched from finance to tech, I found no one regretted.
Plus the TC is still much more than HF even after the 40% drop.
Eventually didn't get the offer because they said I didn't pass leadership interview. Apparently I was interviewing at one level above I thought I was interviewing (the recruiter messed up).
That sounds very encouraging. Need to tell all my friends to invest hours and hours of their time in this company's careful and considered hiring process.
Doordash has compensation ideas where they will top you up if your comp falls under some percentage of grant price (80-90%). Many companies are moving to this model to ensure that stock prices don't impact TC too highly.
Another way to look at it is that people were all too happy to accept the status quo until now.
Same as any other time... build an intra-sector long/short beta-hedged portfolio with minimal net exposure. Overall market and sector movements don't affect this. You can do cross-sector trades for even more profit at the cost of assuming sector risk.
> As someone with just cash compensation, what can I do in this downturn to make a lot of money in the stock market? Maybe I just stick with the old boring Apple.
Depends on your risk. You can buy TQQQ or do HFEA as examples.
The problem I have with the Economist these days - they've changed a lot recently as has the Financial Times - is that they are one of the big cheerleaders for creating bubbles out of tech they clearly don't understand. This starves the startups that have compelling and reachable business models and goals because the funding goes to (quite possibly financially scammy) moonshots with vague goals somewhere over the horizon.
But because the scam worked and they managed to get publicly listed (how did that happen?! Publications like the Economist should have provided more cautions...) the gravy train rolls on.
The sooner we get back to a 'Web 2.0' era like 2008> on the sooner genuine innovation will be funded again.
Searching for "uber" in the Economist archive, I would not classify their coverage as "cheerleading" or even positive. Most articles seem either neutral or negative, including headlines like "Can Uber ever make money?"
I would also be interested to see examples of the problem you're describing.
I don't think Uber qualifies as "tech they clearly don't understand". Uber is certainly a company with issues, but it's a clear problem they are solving, adding automation to an industry that's very old.
The Economist was of the few publications to investigate “what if” before Brexit while almost all others dismissed that scenario. They might not be perfect but they try and they investigate.
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I recently talked to a startup, similar pay, culture would be a better fit since it was mostly techies and I'm a nerd by nature.....but things just got awkward as soon as I asked about their revenue....they were bleeding money and I was told they were being acquired by a big corp. Also, the tone worried me, the confidence the CEO presented early in the call disappeared.
I also tried digging deeper into their business and what they were selling, as I have interest in that space due to my hobbies. I literally didn't see a need for their startup to exist. But I'm just an average developer what do I know.
Need to buy a house? bid 20% more than asking, if you don't - someone else will.. in cash.
Need to build a ride-hailing app? prepare to pay people to ride indefinitely.
Need to own a growth stock? prepare to pay upwards of 100x multiple on revenue.
All around, there have been too many dollars chasing too few assets. I suspect the pendulum is swinging now that housing got to the price point where employees demanded equivalent pay increases to housing cost increases.
There's a lot of money, but also not enough concentrated in one spot to do really useful ventures like large infrastructure projects. So instead the money is distorting everything.
Imagine if lending was less cheap for home owners but it was still cheap for governments or really large companies to be able to build train lines or advanced manufacturing or affordable medium density housing.
I see the problem as too much credit is able to be spent with too little focus. So silly stuff is being funded because the money is becoming meaningless.
0: https://www.youtube.com/watch?v=l0Mw8hCzQ1I
>The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!,’ ignore them.
I know too many folks who did 7/1 ARMs cash out refi to purchase another home in a 7/1 ARM loan, banking not on cashflow but appreciation.
I know of folks who bought homes using margin loans in their stock portfolio.
If housing stagnates, there will be margin calls, leading to supply shock, and price declines. Especially now that mortgage interest rates have nearly doubled year to date.
All-cash is basically the new norm. Two years ago that was an issue for regular buyers, but it’s workable now since lenders have jumped into the mix, more and more offer an all-cash option - they make the purchase and transfer it to you under a traditional mortgage. You still have an appraisal gap to contend with, sine they’ll only pay what the place appraises for, but anyone who qualifies for a loan can probably qualify for the all-cash option.
Inflation and a return to nonzero interest means capital gets to retreat to safer ground, pulling the rug out of stupid unprofitable startups that can only make money with head-in-the-clouds IPO valuation or FAANG acquisition.
It's irresponsible to bid 20% over what the house is worth (which has nothing to do with asking price), just because you got emotionally attached to the house, and started a bidding war with another person emotionally attached to the house.
How can employees realistically speaking even do this?
You can thank the central banks for this. They seem to be too focused on propping up the wrong metrics. Meanwhile the real economy - and the real people in it - are limping like a three-legged dog.
Yet the top layer ignores the messages (e.g., in the USA, Trump being elected, and perhaps re-elected) and persists with the insanity. This cycle - and the associated level of denial - is not sustainable.
Not economically.
Not socially.
And not ecologically either for that matter.
We can't consume our way out of this madness.
Who buys a house in cash? You mean literal suitcases of dollar bills?
Or do you just mean something like a bank transfer? What other ways are there to buy something?
If you expect inflation to stay high for a while this is actually rational... as long as you still have a job.
Depending on the growth rate, a 100x P/E may be cheap.
Buying in cash is being done to skirt the tightened up lending standards that followed the 2008 Crisis:
https://www.reddit.com/r/Superstonk/comments/uflzht/the_2022...
That said. I'm obviously heavily biased but I have realized MOST non-finance employees know very little about the financial health of their employer or even how the business model operates, or even what is the current/future strategy of the company.
When something MAJOR is announced, M&A/leadership changes/etc, the questions the room typically ask are: 1) will we still get 401k match 2) will we get fired 3) will the office relocate. People don't really care too much about the company, they care about how it's volatility impacts them. I don't think it's such a bad thing, but just pointing it out. In startup land, volatility is huge and the highs and lows can occur with rapid frequency. You have to be an assessor of risk when changing any jobs and this is part of it.
Because if I am a vesting or fully-vested employee, then that's my own future at stake. The 401(k) can be dwarfed by many times by a successful stock worth millions, or, in a badly run or positioned company, the stock could be worthless underwater paper shares and I become dependent exclusively on the 401(k) for my sunset days.
The financial literacy of many workers is low though. They don't understand what options are or what it means to really be a shareholder.
When I was at Cisco — I'm talking in the 1990s — we used to describe what we called "stockholder angry." This was when a fully-vested employee heard a VP or above talking about some idea so stupid it would literally cost the company a penny per share or more. That's when the old dogs would get "stockholder angry" and propose alternatives, or ask people to stop ideas that were retrograde for the sake of the company's valuation. Because we knew what a penny per share meant to each of us.
I believe it is valuable for employees at all levels to be able to know the state of their company's health, and then, with an informed mind, be able to voice their opinion on the fate of their organizations.
I remember interviewing with a company in 2000 that had burned through like $40 in two years. This was New York and they hired IBM. I don’t remember their product but it was stupid. They had paid IBM to build their own custom app server for Java because their requirements were too specific for WebSphere that IBM made. They built their own internal Java app server from scratch.
So that was stupid.
Also the interview was on a Tuesday or something and they said that they were out of money on Friday but were confident they would get more money on Monday.
They wanted me to start immediately and when I turned them down because of the funding, they asked if I would start on Monday.
It was such a surreal experience that a whole organization could be so crazy.
> They wanted me to start immediately and when I turned them down because of the funding, they asked if I would start on Monday.
Is is straight out of a comedy sketch, I feel like you could take that to an open mic night and kill with it.
caring about the business and its fundamentals is important beyond just slinging code.
This is a huge red flag in my eyes, of not being open enough to see the books. It signals that something is quite wrong at the company, and even if it weren't, that they are not truly honest with their employees.
If I got hit by a bus tomorrow, they would send flowers and “thoughts and prayers” to my wife and have an open req before my body got cold.
Even if you are getting paid an extremely good salary, who wants to start working for a company that's potentially months or a year from becoming insolvent? The fact that this might not be standard due diligence as suggested by your comment is mind boggling to me.
I'm average and have always asked these questions :) When I got my CS undergrad I almost had a minor in business, so that side has been an interest from the start.
How the company is doing, what is their core business, and how will my position fit in that business have always been key questions for me when interviewing a company.
Even within FAANG, many people build careers while working on sinking products (Most products in Google are revenue negative...)
So they pivoted, and now they've aimed their engine at CBD reviews or something. I still don't see the point.
Not everyone is a visionary like Steve Jobs or whatever, and that’s okay. Just build something that solves your problem and helps others who also deal with it.
I've had that conversation. Anyone remember Cuil, the search startup? No revenue. No revenue model. Then no business.
If bleeding money scares you, then a startup is probably not the right fit, a huge number of startups fail.
I think Github, Notion, Retool, Slack, probably Figma, hit revenues quite quickly as they launched and became profitable or at least close to breakeven.
It used to be that you spend your Series A and B figuring out the business, and from Series C forward you've got your unit economics dialed in and are just pushing the "growth" button as hard as you can.
Nowadays you get all the way to IPO without ever achieving positive unit economics: Uber, Lyft, DoorDash... You have companies raising (or trying to raise) Series E, F, G while they lose money on every transaction and make it up in volume.
I suspect OP is talking more about that phenomenon - companies that are way too far along to not have positive unit economics on their core business.
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In all the ones I've experienced or looked at, not hardly as good as tech companies pre-FAANG, your "cushy job, fully remote, good pay and full autonomy with flexible hours" strikes me as an uncommon situation.
Knew someone at a Startup with a product & storyline that would make for a comedy fiction show.
Their CTO called me, enjoyed a convo, and offered me some untitled job - no interviews, no game plans. But full on salary match, equity, whatever… (I make mid 6 figures)
But I’ve been so entrenched in real business that the whole thing just seemed completely off to me.
Mentioning revenue and not profit is not informative.
Usually more than the 'above average' founder or VC.
Back in the day, there was an inherent understanding that a stock price is supposed to reflect "the fundamentals" - present value of the company + future earnings. And of course there was some amount of speculation around future earnings, but for the most part companies at least tried to be profitable.
But if you look at the share price of like, Tesla - it's completely insane. There is no way your slice of the company is worth that much. The stock market has been behaving like a pyramid scheme, where everyone assumed there will be more money entering than leaving any given stock.
Tech is a pretty egregious sector because of how many business models basically boil down to "we don't actually need to make money if we have a desirable stock". In the long run, I don't think we'll be worse off if the next generation of software companies actually focuses on making products people want to buy rather than play games with DAU and user acquisition and etc.
Whether you believe the competition will catch up, or Tesla will fail for some other reason is besides the point. I'm just trying to show that the current valuation is not "insane" given current trends, there's a very real logic to it and not (completely) FOMO.
Correction: Toyota's earnings were higher than Tesla, it was operating income that was higher (remembered it wrong).
Tesla is an impressive company that's managed to finally be profitable. But currently their market cap is higher than all other auto manufacturers combined.
> Everyone else is losing money on their EVs and can't make them in volume production, can't find the batteries for them, you do the math.
That's the thing, this space is getting incredibly crowded this year. Kia/Hyundai, Ford, and VW are all putting out very impressive mass-market EVs that are selling like hotcakes.
Yes, in the most recently reported quarter Ford lost money. And in previous years Ford has also lost money. But so has Tesla.
Looking at Tesla as a traditional automaker is not fair to Tesla. They don't want to be a traditional automaker, I get the impression they want to be more like General Electric was back 50-100 years ago, making all kinds of things and being rather innovative.
Tesla could be priced at 20x PE or 100x PE and be the same company. Your returns will be vastly different between the two scenarios.
OPs point, which is pretty obviously objectively true, is that valuations far exceeded future yields by any fundamental valuation metric. Tech has been valued as if every company will be a pseudo Monopoly like the FAANG companies, which is very unlikely to be true
Not complaining about Tesla stock price as it has the price that people is willing to pay but to me this is definitely a redefinition on what people care when deciding where to invest.
[1] https://www.youtube.com/shorts/vCA79HTry0A?&ab_channel=Roast...
Net income was higher for Toyota - almost double that of Tesla.
Tesla's PE ratio is 99.6, GM 5.6, Ford 10.4, Toyota 8.25.
Tesla's market cap is $1,061B, GM $85B, Ford's $83B, Toyota $254B.
The state of Tesla's stock is simply unreal, not based on fundamentals but on inertia and hype.
Power of their brand is insane. But they seem to be mainly raiding it and diminishing it. Music will likely stop one day.
https://www.mbusa.com/en/vehicles/class/eqs/sedanhttps://www.tesla.com/modelx
That is the future of Tesla. Increasing competition by better products offered by manufacturers with far more experience in manufacturing vehicles, and far superior dealership, service, and parts networks.
I really don't understand, at all, how you can conclude that it is a no brainier to get a Mercedes? It seems like a really ridiculous conclusion?
Just clicking around on the site and trying to do the order shows you are wrong that Mercedes is far superior on non-car related things. The dealership model is famous for its failings. Car salesmen have a notorious reputation. The website for Tesla lets you put in a purchase order within three clicks, no interaction with a dealership. The Mercedes purchase workflow had more like seven clicks and it resulted in getting an interstitial telling me to talk to a dealer about how the car wasn't going to have all the features because of chip shortages, that the price would change as a consequence of that, and directed me to talk with a dealership.
How is that better? How is not giving me the listed price but making me go through a high pressure sales channel superior to just letting me buy car the now? I don't understand at all how you can say that dealership model is far superior. Is it right in your eyes that someone poor at negotiating should have to pay more than someone who is better at it? I don't get it. I don't understand at all how you can think Mercedes is providing the better experience.
I've owned many very good German cars for the last 30 years and loved them, but my Model Y makes them all seem quaint and obsolete.
--Electric cars don't need dealers. I want to be able to buy a car online without spending an hour kicking gravel and haggling with some commissioned salesperson over the price.
--Electric cars don't need as much service as ICE cars, and it doesn't need to be done at a dealer's high-profit service bay. When my Tesla needed its rear seat coat hook replaced, a technician drove to my house and replaced it. For free.
--Electric cars need very good batteries. Tesla has a 10-year, several-billion dollar lead over every other car manufacturer on battery technology. Everybody else is playing catch-up. Ditto for motors and single-piece castings.
--Electric cars need very good UI software. The Germans make the second-worst automotive UI software of anybody (only the Japanese do an even worse job). Tesla's UI has elements I don't like, but every other car's software experience is so bad it's not even worthy of criticism.
Mercedes, Porsche, and Audi are all offering electric cars with specs inferior to Tesla at much higher prices. This will be unsustainable after they stop coasting on their reputations and the supply of German car snobs who refuse to try a Tesla dries up.
I'm sure the Germans will eventually catch up; Mercedes invented the ICE car after all. But Tesla invented the modern electric car and it's a whole different beast.
Declaring my bias: I think this is because they are much worse in range. Now looking up the numbers: 340 mile range for Mercedes. 350 for the Tesla. I was wrong. Tesla was only better, not much better.
Clicking through to order takes several clicks for Mercedes. Along the way of the happy path toward immediate purchase an interstitial pops up and warns me that the price will be changed if I try to order because they don't have the supplies to service the order. Tesla by contrast just lets me order the car with a delivery date in January of next year.
To say your post is deeply misleading as to who is obviously the no-brainer in value for money is an understatement.
So was the stock prices of amazon, google, etc. You don't expect companies that are opening new industries/businesses to trade like AT&T. You don't expect these companies to pay dividends.
> Tech is a pretty egregious sector because of how many business models basically boil down to "we don't actually need to make money if we have a desirable stock".
Tech companies are some of the most profitable companies in the world. Apple, google, amazon, facebook, etc print money. These companies make more cash profit that your companies with "fundamentals" make in revenue in a decade.
> I don't think we'll be worse off if the next generation of software companies actually focuses on making products people want to buy rather than play games with DAU and user acquisition and etc.
That happens in all industries. From finance to hospital equipment to real estate.
If the bubble is popping, it isn't a tech bubble that's popping, it's an asset bubble that's popping.
Yes. And after each crash, people have to re-learn that.
It isn't completely insane.
First off, it isn't irrational to allocate an excessive amount of capital to sustainability. The meme that this level of provision is short-sighted is myopic to the extreme, because obviously over the long term it is failure to be sustainable, not being sustainable, which is myopic. Perhaps it is overvalued, but calling it completely insane goes a bit too far.
Second, you are obviously right that the present value of their assets doesn't justify their current price, but it is hubris to try and claim that their is no future in which their revenues can justify their increased valuation. Think ahead to the future while skipping the steps to get there and we are obviously incredibly likely to exist in a world in which AI and automated labor is commonplace, in which energy is provided through renewable means, and in which transport from point to point is handled by electric vehicles. It is not __completely insane__ to think Tesla might play a large role in this future. It is quite reasonable to expect they would. Their present course has them explicitly targeting playing a very large role in that sort of future. They have been making progress and inroads in playing that role. They are on track to play that role and can play it if they execute successfully. Whether they do, that is another question, but whether the potential exists? It certainly seems to exist.
A lot of times people point at automakers when they try to justify calling Tesla overvalued. The idea that Tesla wouldn't be larger than that industry is silly. That industry spent billions on building out manufacturing capabilities. They took on debt in order to create products which the market doesn't believe will be viable in the future. The projected value of those companies has to account for that and obviously they aren't going to be valued as highly as they might be if they weren't burdened with those liabilities. Perhaps you don't know this, but a few years back legacy automakers were struggling with dealers who would intentionally sabotage the ability to sell electric vehicles by giving test drives in vehicles which were intentionally left without charge. Perhaps you don't know this, but dealers have laws in place to protect them from car companies which force legacy car companies to use them despite the way the perverse incentives could spell the death of the ICE auto industry. There are real structural reasons to value these companies as being less able than Tesla to flourish. Thinking this is the case isn't completely insane.
Many economies can still work well without population growth, other fail despite population growth. If that was the case that population dictates GDP, then investment choices would be very easy.
I'm not convinced this is some natural "tech" bubble. This feels like an M&A bubble to me.
Like others, up until a few years ago, I was a Keynesian. But then I realized that if you allow inflation you're not just "rewarding investment", but you're taking non-participation off the table -- and that's a big problem. Because then people participate in markets not based on value but because they have no choice. That means that you go from value investing to "growth investing" -- which is another name for pyramid scheme and people unironically saying that "the market always goes up."
In my opinion the issue with the stock market is that it is often finance driven and too drawn away from the actual work that is being done and the actual needs and problems potential buyers have. And this problem is specifically worse in tech.
There's a gravity to it. At some point whatever is inflating the values artificially is going to hit some kind of force against it and people are going to want the underlying cash flow. It would be the equivalent of a sort of financial perpetual motion machine if this never happened. I'd argue that's not an probability but something more like a law of physics and is actually literally constrained by the laws of physics (it requires continual population growth, consumption growth, and growth of energy use to keep some of these valuations rising)
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What are the fundamentals of a dollar? Or a bitcoin? Or the Mona Lisa?
Part of being an investor means accepting a certain social value to your investments.
A lot of people want to be a part of the Tesla story. Maybe they buy a car, or maybe a share of stock.
When that story stops being interesting, the PDV of cashflows will start to matter more.
(By the way, PDV starts to be harder to pin down when people can't agree on what inflation even means, let alone what it will be in the future.)
Yeah, that's not the defense of crypto that you think it is...
Companies need to take risk to innovate. A lot as you indicate, and I totally agree, take it too much and doom themselves by never figuring out how to be profitable.
These days simply everything that innovates is "Tech." (Now it's turning similarly to sustainability.) How is Tesla "Tech?" It brands itself as that. By that thinking a lot of other automakers should -- and the autopilot doesn't cut it -- just people don't want to see Toyota stock as "Tech."
The other thing with "Tech" is that if you don't keep pouring your revenue to take more risks until you dominate over others you will die. So fundamentally, all "Tech" stocks strive towards domination via innovation and growth. Amazon (book seller I know) spend the first part of this century with a pretty bad stock and getting tax credits by investing everything in itself and being cheap extremely aggressively. A lot of "Amazons" did not make it.
P.S. If they gave me a 10 year put on Tesla on a sane price I would take it. Alas nobody is taking that bet on the cheap.
P.S.2. The funny thing is it is a self full-filled prophesy. Tesla has the market capital to control debt to try a bunch of stuff until it makes it.
P.S.3. Fundamentals can be used to increase dividends or do buybacks s.t. the stock price will stay/go up. That is the correlation.
P.S.4/tl;dr: The stock market and any commodity market are pyramid schemes -- people get in to make money.
There were signs of rate hike in 2019 but COVID forced Fed to create trillions of $$. Which only added fuel to the fire; equities, housing, crypto saw unbelievable growth.
However the signs of inflation were clear in early-mid 2021 they were hoping it to be transitory. But when the inflation data came in late 2021 it turned out to be multi-decade high leaving Fed with no choice but to raise interest rates for the first time in more than a decade.
Which brings us back to growth companies. As Uber's CEO candidly stated "Channeling Jerry Maguire, we need to show them the money". 2020s will be all about cash flow and efficiency.
On the other hand expect to see cool innovations as it requires genuine scarcity to look for out of the box solutions. While Amazon's stock soared in 2010s their core tech was being built in 2000s while they were relentlessly driving for efficiency.
I think 2008 and 2001 basically saw "cut some fat and reflate the bubble" as the standard approach. I expect the same approach this time though I can't predict if it will work. This is basically the method of Greenspan and Bernanke, explicitly said that the Great Depression didn't have to happen, that juggling interest rates could have solved it.
The thing about these situation is that by just killing weaker players, the Fed allows the basic imbalances to remain and increase (income inequality, monopoly positions, speculative enterprises, etc). The Great Depression was the single biggest equalizer of income, I think in US history and certainly in the 20th and 21st centuries. Not that I'd be in favor of such a thing.
If the Fed talks the market down and people sell, it will have destroyed money without other harsh measures. That doesn't mean there won't be more pain other ways also.
Why would you buy a 100x PE company (1% yield) when you can get 3% guaranteed today? Even growing at double digit rates, how many years just to match that return? Except many tech companies were 100x PS not even 100x PE. DDOG and NET are two examples.
If the 10y runs to even 3.5-4%, and stays there, we're likely to see a 40-50% haircut in markets.
Correlation does not mean causation, as it's commonly said. Interest rates were high in the 80s and 90s yet tech stocks boomed. Tech stocks did so well because they make so much money. Facebook earned $40 billion in profits for 2021, 3x Walmart. Google makes even more. Also, market dominance and moat factors working to big tech's favor.
I pitched an idea to a VC, which I had a prototype for, looking for $100k. He liked it but wouldn't fund because I didn't have a solid business plan. Fair enough, I need to find a business partner. But then he told me something about how I have to imagine that it's $100k of my money. I need to respect it properly and ask myself: would I give someone this money so easily? Meanwhile he had his hands in various bullshit crypto (not hating on crypto, just the projects) defi startups.
I thought it was absurd, of course I don't respect your money: VC firms throw $250k+ around like candy to people who happen to give a specific quasi-Silicon Valley impression or are in crypto. You're telling me you can't spare $100k? Also, I haven't seen a single "promising" startup actually be profitable, except those ones made without major funding.
This has all been some kind of weird ass circus for years, I'm glad the bubbles are bursting.
That's not how it works. You're not the only person asking this VC for $100k. A thousand other people are, too. A policy where he spares it for (what he considers) a bad investment like yours means sparing it for all the other bad investments, too. That would cost a lot more than just one check.
Look at your own investment portfolio. Are you investing $1 at a time in fractional shares of a million different stocks, or investing $1000 at a time on a smaller number of stocks/funds you expect to have solid returns? (You think his crypto bids are misguided. Maybe you're right. Not your money though.)
If you're certain about your product, you don't need an investor. You need a small business loan.
The idea is a service that could open the black box of online video content. Right now you search for something and get the whole video as a result; if it's a 3 hour long podcast you're going to be doing a lot of seeking for specific information. I want to index and enable deep visualized search through video libraries and in videos. Basically splitting videos into linguistically salient topics, keywords and entities. That would allow you to analyze and visualize content (YouTube channels, videos, etc.) to find interesting information. Good for researchers and people looking for something specific, or people wanting to find new content (relationship graphs).
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Besides Matt Damon I suppose.
Your confusion is assuming that "bullshit" means "unprofitable". Plenty of projects turn profit for their owners.
Why would they invest in bad projects? Because they are humans who happens to have a crap ton of money. As humans, they're susceptible to FOMO and hype. They are susceptible to things like first impressions, a good slide deck, a good sales person, etc.
All this to say is that it might be the VC, it might you, or it might be your project. Who knows. This is why many founders end up pitching to 30-40 VCs because sometimes it's a numbers game.
The whole VC funding thing is a game that you have to learn about and crack. The easiest way to crack it is to show you have growing revenue. The next best thing is to show you have growing users. If you do not have growth, then you'll just have to hustle and put on your best sales game.
Just keep at it. Don't get upset at any particular no. Remember that it's their money and you're not entitled to it.
SV has lost its soul. A VC that respected tech nerds would see your technical idea, (maybe) discount the investment, and then get on the phone and help you find a business partner that will take you all the way (and give you first right of refusal on assholes).
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The whole point of VC is cash to be unprofitable. Grow faster by overspending today.
I remember thinking in ~2015 going to conferences that this shit was never going to last. Then around 2018 driving (sitting) on 101 listening to advertisements for "C3 IoT AI" on NPR thinking, could a company jam more meaningless buzzwords into a single company name? For shits, looked up their stock just and its down 85%[1] since it's IPO. ofc.
To anyone who hasn't lived through a .com explosion, hold on to your butts.
(also consider moving to cash and $SARK $VIX)
[1]https://www.cnbc.com/quotes/AI
I would have saved myself a bunch of losses if I had done it when I was thinking about it.
When you have invested in something, did you do your DD or did you do it because everyone else did it?
I would recommend a book called "the intelligent investor". I also recommend low fee mutual funds that track the market as the default thing to invest. Once you educate yourself more you can make more sophisticated investments.
I also don't have anything against speculative investments. Just don't call it investing. It's gambling and it's fine as long as you know what you are doing and are okay with basically losing most (everything) you put in.
Or, alternatively, you might have cashed out when you thought you should, then completely missed the bottom trying to time it, then sat on cash for years, watching it lose value to inflation anyway.
it's still going on. Facebook & Google are still worth a lot more than they were in 2015. The difference nowadays is that the largest of tech companies are much more profitable and dominant.
The question is... if it gets spun up again, does it just create a self-fullfilling prophecy and begin the 2000-era implosion for real? :-)
Anyway, I accepted an offer from a hedge fund, comparatively similar, but all cash.
Now I feel that I am glad I accepted the hedge fund offer.
I don't have a property, not looking to get one due to HCOL high property prices and high interest rate.
My assets are mostly crypto and total stock market index. I think I'm good with my crypto investment for now (already filled my goals) so I am thinking to get more stocks.
As someone with just cash compensation, what can I do in this downturn to make a lot of money in the stock market? Maybe I just stick with the old boring Apple.
Vanguard's fees for index funds (esp Admiral shares) are absurdly low, to boot.
That sounds very encouraging. Need to tell all my friends to invest hours and hours of their time in this company's careful and considered hiring process.
Another way to look at it is that people were all too happy to accept the status quo until now.
Depends on your risk. You can buy TQQQ or do HFEA as examples.
Uber is a good example of this:
https://www.gobankingrates.com/money/business/famous-compani....
But because the scam worked and they managed to get publicly listed (how did that happen?! Publications like the Economist should have provided more cautions...) the gravy train rolls on.
The sooner we get back to a 'Web 2.0' era like 2008> on the sooner genuine innovation will be funded again.
I would also be interested to see examples of the problem you're describing.
Can you share an example?
The E runs plenty of cautionary articles and they are good at hindsight
https://www.economist.com/business/uber-doordash-and-similar...
But aren't exactly leading the charge against financial corruption imo
I'd argue it broke in the 90s and we need to go back much further.