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IPO Mania - Can lithium help?

IPO Mania - Can lithium help?

Posted Jan 16, 2008 21:15 UTC (Wed) by ncm (subscriber, #165)
In reply to: IPO Mania - Can lithium help? by rahvin
Parent article: Ten-year timeline, part 2: the bubble days

Just about everybody's retirement fund lost a lot.

Imaginary money aside, an enormous amount of real money changed hands, and it all went into
somebody's else's pocket.  Investors' money was turned over in big chunks to owners of market
research companies, and to Sun, Cisco, and Oracle.  I.e., the main result of the bubble was to
transfer money from your parents to Larry Ellison and his friends.


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IPO Mania - Can lithium help?

Posted Jan 16, 2008 22:47 UTC (Wed) by rahvin (subscriber, #16953) [Link]

My parents didn't transfer any money to anyone. Having been born during the great depression
and growing up in a rural state during the great decline in rural towns and business in the
this nation all my parents funds were held in cash or cash like instruments. The money lost in
IPO's and the bubble in general had little to no impact on them. Please don't make ASSumptions
about my parents. 

Keep in mind my statement wasn't about the general market or even the stock market, but about
the companies without real businesses that barely made it to IPO or barely missed it (such as
the article's references to Atipa and their fast talking CEO). You are attributing the general
market decline that was caused by the dot-com bubble collapse to what I said when my intent
was to talk about the shysters and fast talkers that show up during every bubble and insight
into such provided by the article. The general market decline was the result of the reduction
in sales, capital availability and bad debt that the dot-com bubble caused. Also in markets
that were a party to the dot-com bubble (California) you saw large economic declines due to
the people that were employed by the dot-coms being unemployed and affected materially by the
loss. Most of the general market losses have already been returned. Only those invested
heavily in technology were affected significantly by the bubble for more than a few years. 

I stand by my statement that the ones that lost money as a direct result of the shenanigans
during the dot-com bubble were the venture capital funds, most of which are privately held
investment firms with often small numbers of extremely wealthy investors. IIRC Microsoft
co-founder Paul Allen lost around 12 billion dollars on bad businesses during the dot-com
bubble that he funded with his Vulcan venture capital firm. You can read a fairly fluffy piece
about his mistakes here:

http://www.businessweek.com/magazine/content/04_18/b38811...

His losses alone likely make yours insignificant by comparison.

IPO Mania - Can lithium help?

Posted Jan 16, 2008 23:11 UTC (Wed) by ncm (subscriber, #165) [Link]

That's for a value of "your" evidently not including "rahvin's".  There are other readers
here.

Paul Allen's losses affected his available life choices not a bit.  The venture funds drew
principally not on the extremely wealthy, but on funds controlled by investment managers.  The
sum cost to our (collective) parents  dwarfs that of the billionaire investors, and the effect
on each of our lives was much larger.

IPO Mania - Can lithium help?

Posted Jan 17, 2008 3:03 UTC (Thu) by rahvin (subscriber, #16953) [Link]

"The venture funds drew principally not on the extremely wealthy, but on funds controlled by
investment managers."

I challenge you to back up your assertion with facts. Present the ownership of many of the
dot-com venture capital funds and their tie in with general market funds the average
middle-class American invested in? I know of not a single venture capital fund that draws on
funds from middle-class Americans or their investment managers. In fact I don't know of a
single publicly held venture capital fund, every one I'm aware of is held privately where
investment in the fund is by invitation only. In fact the following quote from the Yahoo!
Finance glossary quotes the following:

" Venture capital (VC)
    Venture capital is financing provided by wealthy independent investors, banks, and
partnerships to help new businesses get started, reach the next level of growth, or go
public.In return for the money they put up, also called risk capital, the investors may play a
role in the company's management as well as receive some combination of equity, profits, or
royalties. Some venture capital also goes into bankrupt companies to help them turn around, or
to companies that the management wants to take private by buying up all of the outstanding
shares."

The first sentence bearing the most important detail. The wealthy independent investors are
not listed first by chance. Your continued insistence on reference to the financial damage to
parents leads me to believe you are too young to have experienced the investment world. Of all
the people I know that actually invest in the market every single one has recovered every
dollar lost in the dot-com bubble. In fact my investment club was extremely hard hit by the
general market collapse that followed the dot-com bubble (but more importantly the 9/11
attack), losing well over 50% of it's value but has easily recovered all loses plus reasonable
gains since. I must admit the investors I know are well versed in the market and have been
investing much longer than the 10+ years I have been and wisdom comes with experience but I
highly doubt they or myself are outside the norm. Maybe other posters wish to step forward and
relate how their portfolio now fairs a little over 7 years since the collapse, even if it's so
far off topic.

But I look forward to your list of venture capital funds that are funded out of general
investors funds controlled by investment managers as you claim. Please include the funds
connection to the dot-com funding bonanza that took place. 

IPO Mania - Can lithium help?

Posted Jan 17, 2008 6:16 UTC (Thu) by njs (guest, #40338) [Link]

No need to get hostile, we're all friends here; and I think you're underestimating Nathan a bit.

He's not talking about people investing individually like your investment club (though in the crazy days of the bubble, a lot of inexperienced people *were* making deeply unwise investments with their personal savings. Not in venture funds per se -- though there was the publically traded and apparently disastrous "MeVC" -- but they still lost real money because they were given awful advice and had no way to realize it).

He's mostly talking about things like retirement funds, which play a huge role in the investment market as a whole, though individual investors have no reason to be particularly familiar with them. CalPERS, for instance, has ~$240 billion under management on behalf of California's civil servants, and the managers of funds like these *do* invest in VCs. Again, just looking at CalPERS's webpage, they have about ~$20 billion in "private equity", which means VC and VC-like investment. (Note that there is only ~$236 billion of US VC investment total.) And pretty much every government body has a similar fund, also universities, large corporations, etc. I'm not finding hard data on retirement funds split out from other sources of VC investment, but basically it looks like the bulk of VC investment -- >50% -- comes from large institutional investors (not rich individuals), and a large portion of these investors are managing money from pensions, or other salutory sources such as non-profit and university endowments.

The bubble scammers ending up taking some rich people's toys, but they stole a huge amount from the general public too, one way or another. Even your claim that small individual investors have recovered from the crash doesn't mean much unless you can tell us where they would be had they skipped the bubble and then invested just the same.

IPO Mania - Can lithium help?

Posted Jan 17, 2008 6:32 UTC (Thu) by njs (guest, #40338) [Link]

I guess I should also add, in interest of full disclosure and to revive this thread's nice
reminiscing tone, that the only way the bubble affected *me* was the ~$30k windfall I got for
having a SourceForge.net account.  (VA was having trouble finding enough developers to take
the pre-IPO stock it had reserved for them, so it started just offering it to everyone who'd
registered a username at the then-relatively-new SF).   I was 18, and *just* grudgingly
admitting that I needed to find my first job...  I lived for two years on that money :-).  So,
if you know anyone who spent >$100 for a share of LNUX, you can tell them that *some* of that
cash went to a good cause.  At least by some standards...

IPO Mania - Can lithium help?

Posted Jan 17, 2008 21:13 UTC (Thu) by martinfick (subscriber, #4455) [Link]

While I am sure that there were many scammers involved in the "bubble," the vast majority of
the lost money was "lost" (transferred actually) in perfectly legal/ethical ways from people
who "cared less"/"payed less attention" to risk/value to those who "cared more"/"payed more
attention" to risk/value.  

This is in no way an evil thing, and the implication that the vast majority of this money was
stolen (it would have to be the vast majority, for it to affect the vast majority of people,)
is simply a dishonest/misleading use of words.  

Markets go up and down, values change, but mostly in the upward direction.  Most people get
richer all the time even including the losses from bubbles.  Those who are better at managing
risk survive this better than others and were probably the ones to whom much of this money was
transferred (as with the current real estate crisis).  This is a GOOD thing, not a bad thing
(although it may feel bad when you're on the losing side of this transfer).  Those who are
better at managing money (read "resources") will get to manage more of it than those who are
not good at managing it.  Would you prefer it the other way around?

The key is to remember that we all (vast majority) are better off and get richer because of
this because there will be more resources all around!  While there may be a greater gap
because of this between the richer and the poorer sometimes, the poorer are still better off
in the vast majority of cases. 

Those who "lost" money will learn to manage it better next time, and will have less to waste
on bad investments (that "bad" feeling mentioned above will help ensure this!)  "Bad
investments" here does not imply scams, but rather simply things such as: research that simply
did not pay off, or over -investments into areas that were already (too) well funded...  Those
who stopped investing in bad investments early enough (the ones who received those loses,)
helped the economy correct itself eventually.   Without this withdrawal from the bubble by the
more conservative, the bubble would have gotten worse and worse (more and more resources
wasted), making everyone poorer and poorer!

So while, yes, there were many scammers riding a wave during the bubble, this does not account
for the losses that most people attribute to the bubble bursting, and these scams therefore
affected way fewer people than implied in many of the posts above.  Of course, it is easier to
imagine that one was scammed out of one's money than to admit that one simply didn't manage it
well (this is not implied about any of the posters, just the general populace).

IPO Mania - Retirement funds

Posted Jan 18, 2008 1:54 UTC (Fri) by giraffedata (subscriber, #1954) [Link]

There seems to be some implication that retirement funds losing money in the stock market means retirees lose money. Retirees lose money only if the employer, who actually owes the pension, also goes broke. In many cases (required by law I think), the employer also has insurance, so the insurance company and all its reinsurers also have to go broke for a retiree to lose money.


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