David Heinemeier Hansson on stock valuations and the collapse of Zynga, Groupon, and Facebook:

So between just these three, some $40 billion has been extracted from the market caps that pension funds and other last-sucker-in-line investors bought into. While, in the process, soured many on the idea of the public markets and enriched investment bankers hawking the toxic stocks. Hey, at least someone got out while the going was good.

Heinemeier Hansson and I very much agree on the stupid methods with which stocks are valued — the method appears solely based on hype. I hadn’t done the math, but I can’t believe how high these stocks were, only to come tumbling back closer to reality.

I know that most stocks are bought by large buyers, but I also wonder how much places like Etrade have to do with this — allowing individuals to buy very small amounts of stock on a whim. I have to think that somehow, the pool of investors has shifted from people eager to look at the numbers, to a group of people that say: “hey, Facebook, yeah everyone uses Facebook.”

I wish it wasn’t that way — hard to keep a company honest when the investors don’t really care to read about what the company is doing behind the scenes.


Posted by Ben Brooks