So far you’ve all missed the difference between speculation and investing.
What people call investing is no longer investing, it is speculation.
In it’s own way, the speculators free the capital of the investors to do the real investment. But the speculator model that currently holds sway, rewards knowledge based gambling. You don’t invest in Google today, you speculate that tomorrow someone else is going to give you more for it because they think the next day someone else will give them even more.
Investing in Google would have been funding it as the start up or pre-startup because you understood the business model and ability to generate cash flow in the future by providing valuable services. However, that same investment may be speculation if the pay-off calculation is based on an IPO and the sell-off of a yet another ‘growth’ stock that relies on the ponzi model to generate returns.
It’s a fundamental problem with our market, IMHO. The speculative model rewards growth and valuation through ponzi-like investor replacement rather than generating direct sustainable cash flow (value) for the investors. The leadership viewpoint then becomes short term focused to juice the ponzi-multipiers.
A good example was Amazon at peak of the dotcom boom that had a PE ratio that translated to them having 100s of billions in revenues in the future with 10s of billions in earnings annually when a rationally imposed set of multipliers was used to value the similar to other successful high-margin (AMZN is low margin) companies.
