Last March, the
Nasdaq skyrocketed above 5,000 points to reach its highest valuation
ever. Everybody appeared to be cashing in and people just couldn't
stop talking about their burgeoning stock portfolios. The technology
sector was on fire and IPOs were red hot.
To most people, it was inconceivable that the dot-com bubble was
just about to burst.
But in the last year, the Nasdaq has sunk below 2,000, losing
more than 60 percent of its value. A lot of the high-profile
companies that appeared unstoppable not so long ago are now nothing
but a fading memory. And the once obnoxiously vocal day traders are
finally keeping their mouths shut.
What a difference a year makes.
It was surely fun while it lasted. Over the last couple of years,
I got a lot of great deals online, thanks to endless coupons and
unprecedented discounts. A daily visit to TechBargains or DealNews was a truly rewarding
experience, with promotions so plentiful, it was hard to restrain
oneself from buying too much.
The dot-coms were trying to outdo each other, throwing money left
and right. One of the most memorable blunders of the hype era was an
unconditional US$100 off coupon from Value America, a now defunct
outfit once financed by Paul Allen’s Vulcan Ventures. I still regret
not finding out about that one on time.
Anyway, the list of bankrupt Internet retailers that were
supposedly valued at hundreds of millions of dollars just a short
while ago would probably exceed the entire space allowed for this
editorial. In fact, whole e-commerce sectors are virtually getting
wiped out. With companies like Pets.com falling off the map, those
looking for doggie treats online might soon be out of luck.
Great domain names such as Hardware.com, Furniture.com, and
Garden.com did not help their owners much. Neither did novel
business models like Mercata.com's reverse auction paradigm. They
are all gone and nobody but their former employees seems to miss
Whom Do You
The so-called stock analysts must have been blind to maintain a
buy rating on shares of eToys up until just a couple of months
before the company went under. How can we rely on these "experts"
any longer? And whom do we turn to for advice after we realize how
badly they have discredited themselves?
I turned to Warren Buffett.
Yes, I'm talking about the legendary investor who was only a year
ago accused of having lost his marbles as he was persistently
refusing to put any money into the "emerging" technology companies.
He is back with a vengeance and the shares of his company --
Berkshire Hathaway -- are once again trading in mid-$60,000s range.
After all, the man who turned a struggling textile mill into a
multi-billion dollar diversified holding company might be worth
A Letter from
So, what is it about his famous annual Chairman's
Letter that's so extraordinary? Well, I've personally learned
more from this no-nonsense report than from all the exuberant
investment advice given out by the trendy paper millionaires that
are still supposedly in charge of the economy.
Buffett’s writing style strikes me as witty and unpretentious. He
often admits to being wrong in his predictions -- something that
virtually no hot shot CEO-for-a-day would acknowledge even under a
gun point. One of the greatest capitalists of our time humbly states
to be merely "content" with his holdings and warns that he expects
his businesses to have "ups and downs"
If even Buffett himself, a hugely successful investor with almost
60 years of experience, claims not to be "smart enough" to pick the
few winners, why would anyone ever trust a stock tip from an amateur
day trader with a fake e-mail account?
Yet, strangely enough, a year ago that didn't sound like such a
Most importantly, Buffett's Letter made me remember that the
American Dream is not really about making a quick buck, but rather
about integrity, trust and dedication needed to build a profitable
business over the long haul. Incidentally, these are the very
concepts that the dot-com people will probably never be able to
One really insightful comment made in the Letter is that "value
is destroyed, not created, by any business that loses money over its
lifetime, no matter how high its interim valuation may get." This is
a simple premise that has somehow eluded the new generation of
Buffett said that many of the "bubble companies" were simply
facilitating "wealth transfer on a massive scale" and managed to
"move billions of dollars from the pockets of the public to their
In essence, they came, collected shareholder money, took most of
it, gave some away, and left without a trace. And in the end, the
New Economy simply turned out to be nothing but a high profile scam.
Perhaps, we'll have to be a little more cautious next time.