One of my favourite books is John Kenneth Galbraith's "The Great Crash, 1929," which, with John Maynard Keynes' "The Economic Consequences of the Peace," is a great example of how an expert can write elegantly about something that is intrinsically complex. Galbraith wrote the (short) book as a diversion from working on "The Affluent Society," and it became one of his bestsellers. As one edition succeeded another, he added a series of prefaces, in one of which he answered a question that had been put to him by a friend: What was the point of going on and on about such a distant catastrophe? The answer, Galbraith replied, is that memory is the only known antidote to financial folly.
Now spool forward to the present day. A startup named Snapchat, which has no visible revenues, recently turned down an acquisition offer of $3 billion (¥309 billion)from Facebook. I can only think of three possible interpretations of this: the founders are idiots; The founders are geniuses who have a plan that will make Snapchat into a Really Big company; or they believe they can get a better deal from someone else.
Then there's Twitter, a company with much the same financial characteristics but nevertheless achieved a valuation of $14 billion (¥2.37 trillion) on its IPO and is currently valued at $22 billion (¥3.73 trillion). In the old days, companies used to be valued on their price/earnings (P/E) ratio. Nowadays, nobody seems perturbed that there is no E. And the other day, in a nicely ironic development, the Nasdaq index nudged past the 4,000 mark, which was the level it reached when things went pear-shaped in 2000 as the first Internet bubble burst.
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