Bubble series (III): Yahoo nel 1999

Un’eccellente articolo di Fortune del giugno 1999, How Yahoo! Became A Blue Chip: A tale of how Wall Street and the rest of us learned to stop worrying and love an insanely valued Internet stock, che ben dimostra (in maniera non intenzionale…) la mentalità del periodo: non è che gli investitori non fossero consci di quello che stava accadendo, ma finché i prezzi salivano tutti erano incentivati a continuare a giocare, inclusi i fondi – che sono sempre comprati e venduti sulle performance relative.

Alcuni dei passaggi migliori:

Today Lise Buyer covers 13 Internet companies. She has a “buy” rating on 11 of them. Yet she concedes, “I still can’t make the math correlate with the stock prices.”

So she turned to a surprising source: “I went back to Graham and Dodd,” she says. She began rereading her copy of Security Analysis, the classic text written in 1934 by the great value investor, Benjamin Graham, and his partner, David Dodd. After much searching, this is what Buyer found: “Unseasoned companies in new fields of activity… provide no sound basis for the determination of intrinsic value… Analysts serve their discipline best by identifying such companies as highly speculative and not attempting to value them.... The buyer of such securities is not making an investment, but a bet on a new technology, a new market, a new service… Winning bets on such situations can produce very rich rewards, but they are in an odds-setting rather than a valuation process.”

Most of Harmon’s readers, after all, are day traders, small investors, and hedge-fund managers who constantly move in and out of Net stocks. They don’t much care whether Yahoo the company is a search engine or a directory service; they only want to know whether Yahoo the stock will go up in the short term.

“I want to be in a stock with a two-million-share float,” says a New York day trader named Lee Ang, […]. “All you need is the littlest hype, and it will run up.”

For day traders, says Offman, “valuation is meaningless.” Anyone who thought otherwise got his head handed to him. Short-sellers, believing the stock was overvalued, would make periodic runs at it. But these were suicide missions. […] Hedge-fund managers who had started out shorting Yahoo often switched to the other side and began buying it up instead.

“Once you reach the conclusion that it is the supply-demand equation that is moving these stocks, and not valuation, you have to make a choice,” Walberg says. “You can ignore what is driving the stocks and opt out of the game. Or you can ignore valuation and stay in the game. We decided we didn’t want to opt out. Besides, you have to recognize that investors are trying to pick winners--and Internet stocks have been the big winners.”

Steve Harmon never had to capitulate on valuations. That’s because he had decided from the very beginning that using the valuation “metrics” of the past for Internet stocks made no sense. For one thing, traditional metrics were just going to scare people off. For another, this really was a new world, in his view. “Newspapers will trade at six times cash flow,” he says. “Everybody knows that’s the deal. Broadcasting is eight to 12 times cash flow. But we don’t have any comparable way to gauge Internet stocks.” So he decided to invent some metrics that he could apply to Internet companies.

Every Internet analyst made arguments along those lines when visiting clients. Most also had ways of dealing with the question of current valuation that was inevitably raised. Most avoided “old-economy measures” such as P/E ratios, which were so off the charts, and used measures like price-to-sales ratios, which at least looked a little more “normal.” (Yahoo’s price-to-sales ratio in mid-1998, for instance, was 103.) All relied on relative valuation measures--thus keeping the comparisons within the Internet universe. That was the key, really: Once you viewed Net stocks in relative terms, it all seemed to make sense.

In one recent report, she joked, “We think the variable that might most explain current relative valuations could well be the number of weekly mentions on CNBC.”

“Do you know why people like me own this stock?” asks Roger McNamee. “We own it because we have no choice.” “I buy these stocks because I live in a competitive universe, and I can’t beat my benchmarks without them.” What he thinks about their valuations is irrelevant. “You either participate in this mania, or you go out of business,” he says. “It’s a matter of self-preservation.”

Having gone from hot IPO to plaything of the day traders to darling of the analyst community, Yahoo has taken the final step on its journey to blue-chip status: It has become a “must” for mutual funds and other big institutional buyers of stock. [Nota: all’epoca i fondi passive e gli ETF non avevano certo l’importanza che hanno oggi]

And nobody talks about valuation. Yahoo is a name everybody knows --so it isn’t considered as “risky” as an Inktomi or a DoubleClick. Besides, if it should all come tumbling down, who’s going to criticize the fund industry for owning it? It’s not as though one or two fund managers stuck their necks out.

Per chi non ricordasse, questo è l’andamento del prezzo di Yahoo! dalla IPO:

Per il punto di vista opposto (ma stesse conclusioni) consiglio invece questo articolo dello stesso anno: What's Killing the Value Managers? 

"Clients, consultants and advisers are all tired of talking value," he said. "They want action."