That's precisely the sort of bubble economics that the parent was objecting to. The objection is to speculation as opposed to investment - investment expects a steady return based on real profits/assets, speculation expects a greater fool to come along later and pay more for this asset, regardless of what it might actually be worth based on revenue/assets alone.
In a bubble (tulips, houses, stock markets) there seems to be an unending supply of greater fools, until all of a sudden there isn't, and someone (who of course expected to find some other fool to sell to) is left picking up the tab for assets which are now close to worthless.
If your valuations are based on what someone else might pay in future, you are speculating, and will be lucky if you manage to get out before other people realise the assets you have bought are not worth $1B or whatever you paid for them. If on the other hand you bought because there is a steady income stream from an investment which will eventually pay off the investment and add returns, and thus underpins the price, you don't have to worry about whether this is a bubble or not.
Agreed. We can't justify these prices by going "well, that is the perceived value by population X, so it's OK!". Sure, market forces are fine, but when market forces start to be influenced more by hype and popularity than actual business fundamentals, we should shake ourselves and snap out of it.
This has already happened so many times in different markets and the SAME market in the late 90s. I guess it's human nature to just fall in the same trap eventually? Money makes us foolish?
Pretty much, yes, though you could argue that the best ones speculate not on what others will be prepared to pay for a company in the future, but on what they think a company could earn.
Pinterest, Instagram etc will likely never earn enough to pay back their current crazy valuations, so their valuations are the first kind of speculation, not the latter. Personally I feel Facebook is also in this group, and is overvalued right now, given their current and likely future revenue.
In a bubble (tulips, houses, stock markets) there seems to be an unending supply of greater fools, until all of a sudden there isn't, and someone (who of course expected to find some other fool to sell to) is left picking up the tab for assets which are now close to worthless.
If your valuations are based on what someone else might pay in future, you are speculating, and will be lucky if you manage to get out before other people realise the assets you have bought are not worth $1B or whatever you paid for them. If on the other hand you bought because there is a steady income stream from an investment which will eventually pay off the investment and add returns, and thus underpins the price, you don't have to worry about whether this is a bubble or not.