Earlier
this morning I was pouring a glass of milk and for some reason there were tons
of bubbles in it. Well, not tons. It’s air after all! But that got me thinking…
There
are so many types of bubbles. Come to think of it, they’re everywhere. The
danger is we really hardly notice them. Do you dive? I’ll see the shark roaming
around the delicious fresh meat that I am, not the multitude of bubbles in the
water that are as many proofs that I am alive – yes, I am still breathing.
Liquid
bubbles. Soap bubbles. Stellar-wind bubbles – yeah, in case you’re wondering, these
are
large cavities that a star's energy creates in the interstellar space. Bubble
wrap. Champagne. Superbubbles.
Mephedrone – it’s a synthetic stimulant – not that I ever tried. They’re
everywhere. It’s an invasion!!!
And
the list goes on. Dot.com bubble. The dot itself is a bubble sort of, isn’t it?
Real-estate bubble. Tulip bubble. Chinese-equity bubble. Chinese-property
bubble. When does it stop?
Everywhere.
Only I couldn’t see them until just about now for some reason. Finally, I am
aware. It’s about time. And all of a sudden I realize how my life, our lives –
yes, I’m talking about us, dear – is running on thin air…
So
I rushed to that old masterpiece of a booklet by John Kenneth Galbraith, “A Short History of Financial Euphoria.” The
book itself feels like a bubble somehow. So light you hardly feel you’ve read
anything by the time you’re done indulging.
110 pages. That’s it! Who does not have the time for such a jewel?
I enjoyed it. It’s so entertaining! I can’t seem to remember the main point it’s
nearly, how shall I say, elusive. It’s just too fun for its own good.
But make no mistake about it. It really weighs a ton. The book
reviews the great speculative episodes of the past three centuries or so. They
show common denominators. Galbraith comments, “This is of no slight practical
importance; recognizing them, the sensible person or institution is or should
be warned. And perhaps some will be. But (…) the chances are not great, for
built into the speculative episode is the euphoria, the mass escape from
reality, that excludes any serious contemplation of the true nature of what is
taking place.” Rings true, doesn’t it?
Fueling this euphoria, Galbraith continues, are two key devilish
ingredients – first, financial amnesia or, as he put it, “the brevity of
financial memory.” Financial collapses get forgotten fast. Come a new bubble a
few decades or even years later, a youthful and self-confident generation hails
the circumstances that create it as a breakthrough, which Galbraith also refer
to as “a brilliantly innovative discovery.” The second is the widely held belief
that the more money an individual is endowed with, the more intelligent he or
she is. In short, the more moula, the more brains. If someone makes money
buying this, they’re smart. My turn then to buy it…
Continues Galbraith, “Uniformly in all such events there is the
thought that there is something new in the world. (…) In the 17th
century it was the arrival of the tulips in Western Europe (…) Later it was the
seeming wonders of the joint-stock company (…)” Yesterday it was the Internet.
What will it be next? Biotechs with no revenue and no earnings? Drones
are pretty light, aren’t they? Do they qualify as bubbles?
Take a company like Ambarella (AMBA). Fabulous firm. Great
technology. Super-fast grower. Its system-on-a-chip designs HD video processing,
image/audio processing and system functions onto a single chip, delivering gorgeous
video and image.
Ambarella
flies high on drones. The notion of drones
with high-definition cameras roaming the skies is a bit perplexing or
mind-buggling, but clearly investors are taking flight on the idea big time. AMBA
started to trade at around $6 in October 2012 and shares are now worth more
than $120. It’s a 20-bagger!
Shall I buy and hope for another 20-bagger from here like so many
frenzied folks? AMBArassing I even hesitate.
Remember, though. A great company
does not necessarily make for a great investment if you overpay.
The magic of bubbles... Just don’t
forget you investor may not have a wand!
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