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Collection: Mohnish Pabrai - #73 'Stay Away From High Flyers'



And so if you look at the the NASDAQ Composite, you know this is the index which is made over 2,200 stocks, the total value of the index is $7 trillion. And the total value in 2009 was about $2 trillion.

And you know, If you mute – I think Arvind if you mute, we get a better audio so I muted you. I will unmute you later.

So anyways, we got $2 trillion in valuation in 2002 and 2009. Currently, the top 10 businesses in the NASDAQ Composite make up $2 trillion. So the top 10 make up 31% and the top 100 make up $5 trillion. And you know, among the top 100 you have the Facebook and the Amazon, and all of that. And so you know you have 2,100 stocks that are worth about $2 trillion and you have a 100 names that are worth $5 trillion.

One more thing I like to just point out, you know, the Nifty Fifty and 73-74 had some tech names. You know, they had Xerox, Polaroid, Kodak, Digital, IBM and so on. And with the sole exception of IBM all the tech components of the Nifty Fifty pretty much disappear, I mean almost all the value was lost.

And that is because you know, like Buffett says rapidly changing industries are the enemy of the investor. And so the one that has stayed even though they didn't deliver a good return had been the non-techs, you know the Coca-Cola and Disney's and such of the world. They have endured.

And today when you look at the Nifty Fifty, it is all tech and it is all in areas of rapid change. And so it is questionable whether so the – the 1970s of Nifty Fifty you know, it's 43 years since that peak of the Nifty Fifty. And Coke is still with us, and Disney is still with us and so on.

Many of them have made it through but if you look 43 years from now, which is, you know, it would be 2068 I think. So 2068 if I were a betting man, I wouldn't bet that in 2068 we have Netflix around. You know, I mean that's – that will be a pretty tall order to make that bet, just because of the reconfiguration and such that take place.

So that's a second piece of the difference between – you know, the other thing about these two – so the first set of bubble we saw were 40 years apart, approximately 38 to 40 years apart. And Nifty Fifty – the last Nifty Fifty and the current one is 43 years apart.

So you are seeing about this, you know, let's say 37 to 43 years between these mega bubbles. And it's again the same thing which is, none of the investors who are coming into Amazon and Uber and all that today have any memory of the 1973-74 Nifty Fifty, never live through it, they don't even see the parallels.

And you know, my lone voice in this will just get drowned out so no one's going to care about what I'm trying to say here, and that's just the nature of things.

And – So then – you know, we get to the NASDAQ Composite. Of course, it went from 5,000 to 1,200. The current situation is not as extreme as 2000, that was a very extreme situation. And it is hard to predict what happens, it could flat line for a long time or it could correct in a short period or anything in between.

But the best advice I could give is just to stay away from the high-flyers, you know look at other places.

And you know we are seeing a little bit of different situation played out. So what happened to the Nifty Fifty in 73-74 is we have these kind of huge macro events take place. You know, like the oil embargo, the big lines outside gas stations, price controls, huge inflation, impeachment of a president, Vietnam War and a lot of things were going on.

What is happening right now is, it's happening kind of quietly kind of – I think they're being taken out back and shot. But they're taking out – taken out back and shot one by one.

So, you know, I don't have a slide on GoPro, you know, which I love as a camera and I'm sure many of you have a GoPro camera. You know, look at the stock chart on that. And you know, when you look at the peak valuation on GoPro, you know, what are people thinking?

You know yeah, it's a nifty camera, but you know, what would it take to one up GoPro? And what is the situation with GoPro in 2068? You know, it's not going to be around, I mean there's no chance.

So what we are seeing is like, you know, the – you know, if you are seeing the shake out happen one at a time, you know, like the Myspace [Inaudible] – Twitter, now at 40% less than peak valuation, LivingSocial which was like Groupon had a $4.5 billion valuation at the last round, they were going to go public, they never went public. They had gone from 4,500 to 800 employees and they are burning cash. Square IPO is less than 50% of the value of the last venture round which is very unusual.

And you know these unicorns that people talk on which is private companies with over a billion dollar valuation, there are 141 unicorns currently with a combine value of $500 billion.

Many of them are going to be real businesses for long time, but I won't expect them to – for most of them to deliver the goods for investors. And I think with that we are at the end and we can now unmute Arvind for Q&A.



[YAPSS Takeaway]

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