Re: Ageing recession warning

From: Robert J. Bradbury (
Date: Thu Aug 30 2001 - 22:24:00 MDT

Randy Smith, replying to me wrote:
> The real problem with the chances of A Bright Future, as envisioned by
> Extropians, et al., is that you-all assume that since the free market is
> driven to produce profits, and that the profits follow the superior
> products, then the power of the unleashed free market will save us all by
> developing AI, nanotech, etc. The problem with that scenario is that
> the profits are not really the nirvana that they once were (you're living
> in the 80's).

a) The "profits" follow the products that people buy because they are
   convinced that they need them. That is one of the amazing things
   about consumer cycles is that if people feel secure and are optimistic
   they will buy lots of stuff that they don't really need.

b) Profits are still what drives the market. Can you point out a
   reasonable fraction (I'll settle for 1% of the market) where
   when companies announce falling profits their stock prices rise
   or when they announce rising profits their stock prices fall?

IMO -- Claims without substantiation. Opinion without factual basis.

Yes, investors, particularly those with little experience are driven
by market trends. But the core people who manage funds that have to
provide returns (or they don't have jobs) are not so easily moved
by such fashion trends.

Can you show me that Warren Buffet invested in any serious way
in the dot-com runup (or lost money in its demise)?

> Nowadays, investment capital seeks stock price increases primarily,
> and not the finished product.

So? IC at the early stages is risky, it wants to get out before less
informed investors may distort the market. All companies go through
stages where the market for their stock moves from "well informed" investors
to "less informed" investors (making decisions on "news" rather than
on "fundamentals"). Less informed investors are likely to increase
the volatility of the stock. There is nothing wrong with wanting to
avoid that. Its called proper placement and withdrawal of "risk capital".

I have been told though that VC's will retain positions until
they think the full valuation of their investment has been achieved.
Sometimes they get this right and sometimes not.

> The way they get stock price increases is by producing some promising
> research, which gets into the news. Then the stock prices go up, and
> profits are taken *there*, and not from the sale of the product.

Well, speaking from a biotech perspective, it can take 5-10 years
for the development of a product. The risk-capital folks get in
and get out early and move onto the next game. But you don't see
the Amgen or Genentech investors complaining about the lack of profits
their products are generating.

Generalizations lacking specifics...

> The problem is that the promising research is often vaporware, or so
> far from being reduced to practice that its utility is small. So, perhaps
> the free market will save humanity, but probably only 200 yrs or so from
> now....Following through on the research is too long term, either
> that or the research is bogus or a dead end, etc...

It isn't so much that promising research is vaporware (though it may be in
the software industry) but that turning an idea into a product and
capturing market share is *really* difficult.

There are lots of cases where the research is valid but the
timing for entering an ill-defined playing field is wrong. I know of
at least 3 candidates for molecular data storage currently. I suspect
they all are being backed by VCs or public offerings. Are they all
going to succeed? Probably not. Will one or two make a big impact?
Most likely. That doesn't mean that the research is bogus or a dead
end but that their timing was incorrect or they didn't have the best
product. Natural selection wins. Investors who didn't do proper
due diligence lose. End of story.

You can turn 200 years into 20 years *if* you understand the problem
sufficiently. That is only an order of magnitude and computer
processing capacity advances by that much every 5 years.

Just where is the beef in this discussion...


This archive was generated by hypermail 2b30 : Fri Oct 12 2001 - 14:40:22 MDT