With the Nasdaq reaching 5,000 for the first time in 15 years this past week, many are comparing the markets of today to the one in 2000, and some are concerned that this tech bubble will be far worse than the notorious dot-com crash (SEE: Nasdaq soars past 5,000 for first time since dot-com bubble – a bubble burst near?).
One of these people forecasting doom and gloom is Mark Cuban, the renowned and flamboyant billionaire, who is going against the status quo in describing the present day Nasdaq as just another tech bubble. Cuban has been in the business media over the past couple of days since he published a blog post entitled “Why This Tech Bubble is Worse Than the Tech Bubble of 2000.”
First, Cuban argues that Uber, Twitter and Facebook are the primary drivers of the current tech bubble. Second, private investors have great expectations for unproven apps and tech startups. Third, angel investors and crowdfunders are making “perilous” bets on these apps because their investments lack liquidity.
“In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story. In the tech bubble it was Broadcast.com, AOL, Netscape, etc. Today its, Uber, Twitter, Facebook, etc.,” wrote Cuban.
Read: 10 massive failures from the dot-com bubble era
“To the investor, [it’s] the hope of a huge payout. But there is one critical difference. Back then the companies the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.
“The bubble today comes from private investors who are investing in apps and small tech companies.”
In other words, the current bubble is all about mobile applications. In 2000, it was all about websites. Centuries ago it was all about tulip bulbs. Cuban is right, and many analysts don’t want to admit it – similar to what happened during the dot-com bubble when no one wanted to concede that a crash was imminent.
So, why is this tech bubble worse than in 15 years? Here is what Cuban writes:
“Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity,” added Cuban. “If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it?”
Here is a fact that many should consider when debating the merits of the tech bubble argument: 71 percent of IPO companies are unprofitable (SEE: Dot-Com Bubble Era Returns: 71% of IPO companies were unprofitable).
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