Chennai: Bubbles like the global dotcom bubble and the US-EU housing bubble are good for the world. It’s not often that such opinions are aired, but Professor Aswath Damodaran of the Stern School of Business of New York University not only says it with conviction but also logically explains the duality of such phenomena indicating his status as a leading lateral thinker.
“If man lost his capacity to dream, he would still be living in a cave”, the professor said. Using the Russia example of a controlled economy producing no bubbles, Damodaran explained that change cannot come about if bubbles don’t come along every now and then. The world’s preeminent valuation expert is convinced that bubbles will return come what may. “Never again,” is heard each time a bubble is pricked and yet they keep recurring.
The sense of déjà vu was complete for Damodaran when he first read of the South Sea bubble, which was a huge phenomenon in the 19th century. However, he has no sympathy for those who lost money in bubbles because they make money out of it and it is easy come, easy go. “Sometimes you become the biggest fool because the bigger fool than you does not come along to buy it (stock or house) from you. The music simply stopped for them,” he said.
What about the social media platforms, the IPOs of Twitter, Facebook? “The music is on for the social media platform. It’s like musical chairs with 12 kids and 11 chairs, finally 11 kids are left wondering where the chair is for them while only one wins. I questioned them when they said Twitter was worth four times what it was at IPO valuation. Just examine the figures,” he said.
“The global advertising business was worth $550 billion last year. Who did the online advertising take away its $125 billion from than the print ads, from the newspapers in US and elsewhere? Twitter is supposed to get $45 bn out of $120 bn. If so, how come they are optimistic also about Facebook and Google? If you are the winner, tell me who the losers are,” Damodaran challenges.
