kdewalt

Web 2.0: Things Haven't Changed Much Since the Last Dotcom Boom

Paul,

There may well be a Web 2.0 bubble but there IS a significant difference. I'm not sure I understand how it can be "cheaper this time to get yourself in just as deep" - particularly what you mean but "just as deep" - but the main difference is that it is much, much, much cheaper to build and operate a company online.

In 1999 I built a web company that took multi-million dollar institutional funding; without it there was no way to build the product quickly, and we characterized all that was good and bad with web innovation back then. This past summer I built a site that rivaled it in functionality for a total cost of $0. I did it with open source software in my own spare time. What took 8 FTEs and 6 months in 1999 takes .25 FTE 6 months today.

Moreover, we had to shut down the business in 1999 because there was no more institutional funding to operate it. Today a similar service could be kept running by the sweat of one entrepreneur using the available online infrastructure to host it and the social online community to market it.

The net effect of this difference is that you will not see spectacular flameouts, massive wealth evaporation, and huge layoffs if there is a pullback. Most, of course, will not be bought by Google/Microsoft/fox/y... People will just hunker-down and keep innovating with whatever resources they can garner. Many of these sites will continue as going-concerns run by a handful of people running a small operation, returning a modest value to their owners and investors.

Given the scarcity of risk-based assets and the huge available levels of liquidity in the world the temptation to spread money among many of these type of companies is understandable.

Essential Portfolio Theory: Smart Asset Allocation for 21st Century

Two comments on the white paper:

1. Diversifying through precious metals, REITS, etc. is nothing new. Refer to Intelligent Asset Allocator from Bernstein as well as countless other sources.
2. The authors of EPT offer no quantitative proof - or even a reasonable argument - why using these strategies will create greater returns for investors with a longer horizon than 10 or 15 years. It seems to me quite plausible that the effects of transactions, taxes, and investments in historically poorer-performing asset classes will undermine the capital preservation impacts from the lower and inverse-correlation investments. While they offer a good explanation for why EPT may mitigate downside risk for those with shorter time horizons, don’t they have a obligation to at least address the potential negative impacts for younger investors?

The Myth of International Diversification

Wonderful, but what we really need is an International Small Cap ETF. I realize that the costs and complexity are potentially inhibiting factors, but clearly there is a market need for this type of product.

Pacific Growth Raises Netflix Estimates - Belatedly? (NFLX)

I highly recommend that any individual investors or analysts listen to the recent analyst day presentation. The company has several strong emerging trends at its sails: popularity of DVDs, weakening competition, consumer comfort with e-commerce, and growth in home theater. In addition, the managment does a fine job of outlining the competitve moat around its business. Anyone who has ever managed a distributed operation or enterprise custom software development process will be impressed.

With the exception of the pricing blunders last year, the management has been successful at making bold predictions and meeting expectations. If their characterization of cost leadership and the addressable market size are correct, this company could indeed become one of the top consumer services in the world on par with Soutwest.

Of course these presentations have be taken with a grain of salt and I'm long on the stock, but it is worth noting that there were few substantive challenges from the audience during the day.