[pron]

But the story here isn't about Facebook's success; it's about their valuation. And valuations matter a lot. The entire US economy collapsed when house prices simply failed to meet growth expectations. Banks loan money backed by (overvalued) equity, and so the entire economy is in effect backed by predictions of future earnings.

I've said it here before, but I think many of the tech and app companies are grossly overvalued simply because the market can be so easily upset. If newcomers can get such positive projections, then surely they must be perceived as a viable risk to the big companies.

Facebook specifically is grossly overvalued because as long as they are making all their money from ads, their revenue comes from the amount of time people spend staring at a Facebook page, and this might be at its peak. True, there are more ways to make money, but there are more risks as well. Please, let's spare ourselves another bubble.

[Eliezer]

Are you short these companies, then? Or are you buying puts?

[redmondbarry]

You appear to subscribe to the shotgun clause school of economics.

Do you not buy insurance? Do you buy lots of Powerball tickets when the jackpot gets large enough to make the average return exceed their cost?

[orangecat]

The utility of money is not linear across large ranges.

Do you not buy insurance?

I have insurance against catastrophic events, because incurring $100,000 in medical expenses is more than 100 times as bad as spending $1000 in premiums. I don't buy extended warranties.

Do you buy lots of Powerball tickets when the jackpot gets large enough to make the average return exceed their cost?

No, because winning $100 million isn't 100 times as good as winning $1 million.

[pron]

I'd short many of them if I had the cash.