Prem Watsa, the investment legend and founder of Fairfax Holdings, was brutally blunt. In his annual investment letter, he said he is “always amazed” at the manner in which “rampant speculation” has driven up the stock prices of internet companies like LinkedIn, Facebook, Twitter etc. “We’re confident that most of this will end as other speculations have – very badly!” Prem Watsa added in a grim tone.
Prem Watsa’s prediction came true yesterday when LinkedIn, which is/ was one of the darlings of the internet craze, fell off the cliff. In just one trading session, it lost a whopping 43% of its market capitalisation and wiped off $11 billion of investors’ wealth.
In the wake of LinkedIn’s debacle, other fancied internet stocks like Twitter, Facebook, Google, Amazon etc lost big chunks of their value. Nasdaq, the index of tech stocks, also shaved off a big percentage of its value.
There may be more bad news for the shareholders of LinkedIn because StarMine claimed that the stock’s intrinsic value is $72, a 30% discount to the closing price on Friday.
Understandably, the punters who were looking to make a quick buck were distraught at their loss.
“retail idiots will never learn. this is how Wall street steals money” ecartmen1997 proclaimed. “havent seen carnage like this since Dendreon” he added.
“where is the bottom?” android_shopper wanted to know.
“even the worst Chinese stocks don’t go down like this … man, this was ugly” idbtc complained.
“Because all these irresponsible stock analysts cut the price target sharply. I wonder these A-holes know what they are doing. How can the price cut more than 30%+, just based on one missed guidance?” wtwin1318 fumed.
“The only good news about this big drop in the stock is … I do not own any!!!!” dowtrader25 joked with a wicked smile on his face.
However, the bigger issue is that the problem is not confined to internet stocks. Instead, the savage crash in the stock prices of fancied companies is a sign that the entire market is spooked says Molly Wood, an expert. She pointed out that most investors are still suffering from PTSD (Post Traumatic Stress Disorder) relating to the stock market crash of 2008 and are very jittery. She called the LinkedIn crash a “trigger warning” that a crash is imminent. Any bad news, no matter how trivial it may be, is sufficient to trigger a savage sell off she warned.
So, the sensible thing for novice investors like us to do is to fasten our seat belts, sit tight and not attempt anything adventurous. The journey is likely to be turbulent!
The heading and the analysis is misleading….
Companies with little or no clear revenue model will catch imagination and then fade away …so whats the big deal ..we all know that
Caveat – buyer beware is the catch word …they should have understood, done due diligence , then bought
You reproduce the portfolio moves of large investors and if some ” idiots ” blindly follow them without due diligence ..lose money then its not your fault its their fault
so if one share losses money due to poor result , poor business model …dont in one swing label the whole market bad….this had to end like this ..always does and then the sector gets real thats all
High sounding head lines create scare in the minds of people …better avoid !
cheers
Can you post factually correct information? The stock price feel in after market hours, not during a normal trading session.
*fell
looking at the other comments, is it right to consider LinkedIn just like another social media co?
Again, another ridiculous point. LinkedIn does what? Connect business people and workers. WOW! What a company. They must be worth trillions of dollars becuase I can now connect with other work minded people. After I do this I will become a millionaire. So tell me how every user of LinkedIn has increased their revenue? Tell me! Give me numbers so we can calculate the value that is a waterhole on the Internet. The price dropped now? What, how can this be. It is LinkedIn! It is the hottest and hippest way to stay in touch with all my friends. It’s so cool. Yes just like Facebook, if I have a friend it means they are really my friends and they will drive the economy of our homes and businesses. LinkedIn should be worth 100 trillion dollars. What company in the world can keep people in touch?
And Facebook users just a word of advice. The comlany only caters to people’s egos. By using the site you feel you have friends and everyone wants to know what you are doing. You feel special. Sorry but if you invest in the company thinking it is a super money machine. Then you are right. But don’t be surprised once the company collapses. Becuase it is after all just a company that lets you say I am alive.
I disagree. Facebook, for example, tells you at the very beginning that whatever you post is a property of facebook and you cant claim rights even on your posts. So what they do with you and your friends and their friends and so on which runs into billions, is send the whole stuff into a massive data mining program which essentially filters out what you like, what you dont like, and make a data and sells the data to big companies, say a garment company (you may have posted your snap with a red shirt of a particular brand), or a car company (you may have posted you dont like the leg space of a particular car), or a shoes, FMCG, or whatever company AT A PRICE. This is what all of us miss. There is BIG money made here. AT GOOGLE this business is multifold because Google’s penetration is much much more than FB. The next biggest revenue generator is advertising. Third biggest is the rent they get from hosts who use their massive server space. Cheers!
Good point. And I have to agree on that fully. My only counter is this. There can only be 1 watering hole that brings everyone together. There is only a certain amount of humans in their world. So Facebook is only valueble until it is number 1.
Eventually, when friends on Facebook look at the cons of posting their lives on Facebook it will eventually catch up. When that will happen, is hard to say, and if that may ever happen. I am inclined to believe that the sole bearing of most humans is determined by the inmaterial and inconsequential rendering from others. As long as their lives are governed by weak mindedness then a company that simply brings people together at a watering hole and gets their preferences will be believed to be extremely valuable. Until people get a life.
Whereas a company like Apple that actually has profound influence on everyday life is looked upon as a dying product.
Guys,
It’s simple, the market will come to 22000 it’s for sure, who ever does not want to see the big erosion of capital in front of your eyes should either sell the equity when there comes a chance or else should buy additional shares when it comes cheap to balance things. But I will not buy anything until things fall to 22000, then there will be good opportunity.
This will have an impact on Indian online space too…. let see if this affects Just dial on Monday.
Indian ecom space too is a bubble which will bust in a ugly way. Similar can be seen in so called indian quality stocks too…Kaveri Seed, Kitex, Page, Hawkins…all fell from grace. Hoopla took all these stocks to unsustainable valuations.
Facebook, LinkedIn, Uber, netflix etc are great companies…they have just scratched the surface of digitization… They might have excessive valuation, in bear mkt that might correct by 50% but eventually many of them will be winner and bigger than what they are….many Warren buffet fans missed tech companies like Google, amazon etc saying ” we don’t understand technology” but that’s stupid following..technology is easy to understand and has great Economic moat