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We recently wrote about the “Speculation Era” in Tech stocks. It doesn’t have to be this way. Institutional investors don’t have a gun to their heads forcing them to chase performance in companies such as TSLA and SNOW. Yet many are doing just that, throwing time-tested investment principles out the window. Many justify their outrageously expensive portfolio holdings based on out-year earnings estimates. No earnings? No problem. 50x revenue for ABC Inc? Sure. 100x revenue for XYZ Corp? Yes, I’ll buy some. What’s driving this valuation mania? Two things in my view: 1.) Many portfolio managers don’t have a clue about the companies they own. They wouldn’t know a data mart from Walmart. Poor diligence and lack of understanding makes buysiders suckers for VC’s looking to float companies at exorbitant valuations. SNOW for example was valued at $12 billion in May – a rich valuation – only to go out at $30 billion on IPO day (Sept. 16th), and proceeded to more than double in value that same day. P.T. Barnum would love today’s buyside crowd. 2.) Buyside compensation models are too heavily-weighted to short-term performance. This leads to risky behavior and short-term decision making at the expense of long-term, consistent performance – i.e. “investing.”

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