Howard Marks book, "The Most Important Thing", mentions that in order to succeed in any field, a person should engage in "Second Level Thinking" with several practical examples.He explained this concept by giving an illustration.Whenever Andrew,his son shares any idea with him, the first question he asks is " How popular is this idea ?"According to him if the idea is too popular it is not worth trying for. Because there are many people around the globe who have not only thought of the idea but also have implemented the same.So if we try to work on similar idea,we won't be able to earn economic profits.This can further be exemplified with fixed income security in which prices and yield exhibit an inverse relation.When more and more people purchase a bond, its price go up thereby reducing its yield.
The same rationale applies appropriately to a startup.As we all know, startups kickstarted in San Francisco ,US.At this juncture, this idea has taken the world by storm.When it enters the developing economies, the possibility of it turning into failure swells. Nowadays, there is an entire page in financial dailies devoted to startups. It means the popularity is surely gaining momentum. It will reach its peak once newspapers in vernacular languages also start publishing.As quoted by one of the investors, " You can't time the market".So, definitely no one on this planet can predict when this bubble will burst.One can only assign probability to it.
Another factor which will contribute to bubble burst is that humongous money is chasing startups and it continues to grow by leaps and bounds. This can lead to wrong decisions on part of investors; they might invest in unprofitable ideas. Even Sequoia Capital back in 2000s could not have predicted Google's, Facebook's probability of success.Obviously their probability would have been much higher but no one puts all his eggs in one basket.However it seems that this trend is changing. Almost everyday you hear these startups getting huge funding.Even Kumar Mangalam Birla, Chairman of the Aditya Birla Group raised questions on the e-tailers getting humongous capital.According to him, investors will surely begin to demand returns.
"History does not repeat itself, it rhymes". "Those who do not remember the past are condemned to repeat the same". It is very essential to look back into the history.Tech bubble which burst in early 2000's was no different from present startup mania.Tech companies share prices sky rocketed however there were no profits to show for,but no one bothered to study its financials. In fact folks had misconception that if they focussed on the fundamentals, they would miss out on profits.Such was the hysteria at that point in time and startups today are in a similar boat.
Finally, I would like to conclude by saying that since world is nothing but series of new events ,both positive and negative, similarly financial markets keep an eye on an upcoming event. So I won't be surprised if genesis for the next recession is "Startups".
The same rationale applies appropriately to a startup.As we all know, startups kickstarted in San Francisco ,US.At this juncture, this idea has taken the world by storm.When it enters the developing economies, the possibility of it turning into failure swells. Nowadays, there is an entire page in financial dailies devoted to startups. It means the popularity is surely gaining momentum. It will reach its peak once newspapers in vernacular languages also start publishing.As quoted by one of the investors, " You can't time the market".So, definitely no one on this planet can predict when this bubble will burst.One can only assign probability to it.
Another factor which will contribute to bubble burst is that humongous money is chasing startups and it continues to grow by leaps and bounds. This can lead to wrong decisions on part of investors; they might invest in unprofitable ideas. Even Sequoia Capital back in 2000s could not have predicted Google's, Facebook's probability of success.Obviously their probability would have been much higher but no one puts all his eggs in one basket.However it seems that this trend is changing. Almost everyday you hear these startups getting huge funding.Even Kumar Mangalam Birla, Chairman of the Aditya Birla Group raised questions on the e-tailers getting humongous capital.According to him, investors will surely begin to demand returns.
"History does not repeat itself, it rhymes". "Those who do not remember the past are condemned to repeat the same". It is very essential to look back into the history.Tech bubble which burst in early 2000's was no different from present startup mania.Tech companies share prices sky rocketed however there were no profits to show for,but no one bothered to study its financials. In fact folks had misconception that if they focussed on the fundamentals, they would miss out on profits.Such was the hysteria at that point in time and startups today are in a similar boat.
Finally, I would like to conclude by saying that since world is nothing but series of new events ,both positive and negative, similarly financial markets keep an eye on an upcoming event. So I won't be surprised if genesis for the next recession is "Startups".
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