I unabashedly confess that I made a lot of money on tech stocks in the 90s. I'm a techie, and I knew what to buy and when to sell. It's like Las Vegas, except a little pertinent knowledge doesn't help you when you've bet hard 8s on the craps table, but it is extraordinarily valuable when wagering on technology stocks.
It is wagering. Don't fool yourself. And there's nothing wrong with it, any more than there's something wrong with making a reservation at the Wynn and fiddling with your mad money. At the Wynn, they ply you with free refreshing adult beverages. In the NASDAQ, the wins are bigger, but there's no free booze.
The NASDAQ lost a quarter of its value in one day when the internet stock bubble imploded. Most of the problem was that technology companies are long on ideas and programmers from India, and very short on physical assets. So when they die, there's not a lot of wreckage for the investors to divide up.
The ever so helpful government came up with the Sarbanes–Oxley Act to keep asset-light companies from achieving pre-IPO valuations way out of line with reality. The law is so complex in its reporting requirements that pretty much every compliance person admits that he doesn't understand every facet, and stays up nights planning his shuffle off this mortal coil rather than go to prison for something that honestly isn't his fault.
This noble government effort has crashed and burned. Facebook IPO'ed today, closing 16 cents above the offering price, and valuing the company at $105 billion.
Wow. That's a lot of money, but not a whole lot of payoff for the investors. Everybody and his brother wanted to be part of this stock offering, and there was no tangible surge.
Furthermore, the tapioca IPO harmed the stocks of some of Facebook's fellow travellers, such as Zynga. That's the "ville" folks - Farmville and Cityville and whatnot - who sell imaginary buildings and machinery to real people for real money. They did their IPO last December, with a valuation of something like $20 billion. (Yeah, I know. Don't you wish YOU had a bunch of e-cows and e-alfalfa to sell people?) Their IPO had to be propped up by the investors, also known as a stabilizing bid, to keep it from completely circling the drain. It fell about 30% over the months, then got a bump from the Facebook IPO, since they are married to Facebook. When that wasn't all skyrockets in flight, the Zynga stock headed straight back to the toilet.
Like all fads and eventually surpassed technologies, both Facebook and Zynga will peter out, and when their stock is down to a quarter, they will be delisted by NASDAQ. There is not an infinite market for finding lost loves or buying imaginary tractors, bad as both of these guys want to think that their product is forever. I'm pretty sure that's what the Beanie Baby people thought too. The difference is they never offered stock.
Sarbanes–Oxley was supposed to prevent ridiculous over-valuations, and subsequent ginormous losses by everyone but the employees of the company that did the IPO. And so far, it doesn't seem to be working out that way.
I don't object to someone making a billion dollars in a day. I don't object to anyone gambling money they can afford to lose in the stock market, any more than I object to someone gambling the weekend away in Las Vegas. What I object to is a regulation that keeps people up at night contemplating suicide, and accomplishes absolutely nothing.
A case could be made for preventing financial institutions from using the egg money to gamble. There is no such case for using government regulations to stop stupid people from playing games they don't understand.
So when is Congress going to start passing useful, relevant laws? When we pack Washington with fiscal conservatives that don't want to regulate corporations, small and large, right straight out of business?