Archive for the 'business' Category

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Jeff Bezos on Passion

Published on August 25, 2009 in business, links and personal. Closed Tags: , , , , , .
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Enjoyed this comment from founder of Amazon.com, Jeff Bezos on the role of passion in starting a business…

One of the huge mistakes people make is that they try to force an interest on themselves. If you’re really interested in software and computer science, you should focus on that. But if you’re really interested in medicine, and you decide you’re going to become an Internet entrepreneur because it looks like everybody else is doing well, then that’s probably not going to work. You don’t choose your passions, your passions choose you. One of the reasons you saw so many companies that were formed in 1998 or 1999 fail is that they were chasing the wave. And that usually doesn’t work. Find that area that you are interested in and passionate about–and wait for the wave to find you.–

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Lessons Learned an Entrepreneurial Endeavor that didn’t work out

Published on May 13, 2009 in business, goals, lessons and personal. View Comments Tags: , .
View of Wall Street, Manhattan.
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Well it’s official, or at least it feels that way. I don’t think we’re going to ever sell the GJG directly to users profitably. It doesn’t mean that GJG is a flawed concept, it just means that Chris and I are unable to sell it effectively with our approach. And we’re just sick of trying to sell it. So how do you know whether you need to work through something or you need to cut your losses? In other words how do you know when something is a good hitter in a slump or just a bad hitter. The good news is there are lots of lessons in this experiment that I can take with me into the future…lessons that can only help me on my entrepreneurial path.

10 lessons

1. Don’t ever do something primarily to make money quickly. It will take way more time, money, and effort to get something going than you could ever think, no matter how quick and easy it appears. So if you have no interest in the particular subject you think you can make money working on, then don’t go anywhere near it.

2. (building on the last one)…Being an entrepreneur requires passion. It sounds cliched but if you took money out of the equation, would you work on whatever it is you’re working on? If the answer is no, then you need to re-evaluate.

3. Just because something seems like a good idea, and it’s based on very sound assumptions, it does not mean it’s a good idea for you to work on. We really nailed the economic trends that could have put GJG at the front of rising tide (the search numbers have tripled since we started), but that was not enough to make it work for us. Tying in with the 2 points above, you need more than just a good idea to make something work.

4. Get in front of your business and your customers as soon as possible. We hid for nearly 6 months with GJG. We hoped that it would somehow work and come together without us really ever getting out and talking to other people and even more importantly our potential customers. This again goes back into 1 and 2 because we weren’t really that interested in the subject, we were just hoping it would make us money. We learned more about the business and our potential customers in 3 days of phone calls than we had learned in 6 months of researching, reading, and testing. Get in front of people (customers, other entrepreneurs, potential investors, partners, friends) on an idea ASAP. And going with the lesson learned in 1 and 2, the more excited and passionate you are about something, the more excited you’ll be about telling the world. I guess a good rule of thumb is, if you wouldn’t want your face and name next to an article about your business in the New York Times, then it’s probably time to re-evaluate.

5. Talking and brainstorming are very important in entrepreneurship, and time must be made for them. It’s way too easy to get swept into each day’s activities and completely push off the big picture discussions. In GJG we kept talking about having big idea discussions, but only had a few over the course of 6 months. Make time for connecting, talking, brainstorming around your business. It energizes, and strengthens the long term picture, which provides a backbone for the day to day…thus helping you ride out more of the ups and downs.

6. Planning is important, especially in times of uncertainty. We struggled to really consistently make plans that went beyond a few days with GJG, so we were always sort of scrambling based on the data of the last 3 hours. It’s very important to lay out a plan that is specific and easy to follow, and that has clear success metrics, deadlines, and decision points. We always went on with GJG with the notion that we were just one or two changes away from making it work. If we had been more serious about keeping a plan, with deadlines, milestones, and success metrics we may have pulled the plug or switched directions earlier. By following a moving target, we struggled to really make clear decisions. This again ties in with 1-2.

7. A partnership is built on open communication. With GJG we started early on with a company email list where open discussions where encouraged. These discussions were not just about GJG, but about life, entrepreneurship, personal development, and especially ways to communicate between partners. It certainly allowed for issues between partners to get out while they were relatively small, and so they were discussed and worked out before blowing way up. A partnership is very much like a romantic relationship. Without open communication and a mechanism to get out frustrations, they will never succeed. It’s hard enough being an entrepreneur, much less an entrepreneur by yourself facing off against your partner. If you can’t discuss your dreams and your FEARS with your partner, then you need to find someone else to work with.

8. Don’t try to create and sell a product you wouldn’t buy. This is very similar to 1 and 2, but important enough to state separately. It’s hard enough to create and sell something, much less something that you don’t really care about (no matter how much sense it makes). GJG is not a product I would have ever bought. Even in the outside chance I may have looked for a product like that, I would have NEVER bought it in the manner we were selling it. That disconnect had to show in the product and the marketing, and certainly had to hurt our chances. Entrepreneurship is about creating something that solves a problem and then scaling it. The best way to understand the problem you want to solve is to have it or live it. So if you’re creating something that you solves a problem you don’t have or understand and you would never buy or use it, then you need to re-evaluate a bit.

9. waiting doesn’t feel good. We had tons of waiting scenarios with GJG, whether it was waiting on a programmer to do something, or for people to come to the site, or for people to buy, we had a lot of moments where we sat and watched our inboxes and analytics accounts. Watching and waiting does not feel good, and it does not help your business. It drains you, and it distracts you. Both of these things fulfill a need to feel like you’re working, but neither of them help you make progress. I guess it’s more likely that you’ll stare at these two things if you’re not crazy about your product, your customer, amd the subject matter. But waiting is more than just watching these two things. It’s waiting on an email when a phone call could get the answer now. It’s waiting on one person, when others could potentially help you.

10. Ask for help, early and often.  We did get good about reaching out to others for help along the way, but it took us several months to get there.  People really do want to help, so go out and ask them for it.  If you feel like there are certain people you can’t ask for help because of what you’re working on, then you need to see number 8 above.

So while I’m not happy about the money and time lost in the GJG experiment, I don’t have any regrets because of the many lessons I learned along the way.  I guess the hardest lesson, and one that I didn’t put above, was knowing when to quit.  We probably went way too far into this process because we convinced ourselves this was our only and best option.  It wasn’t until a moment of just intense frustration this week where we realized it was time to make a big direction change.  I can’t say I really have a good idea when it’s time to switch directions other than you can just feel it.  Oh well, on to the next thing…

This post was inspired by this Post in July of 2008

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Inputs of Entrepreneurship

Published on February 25, 2009 in business. Closed Tags: , , , , , , .
Layfield is one of a generation of UK entrepre...
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I’ve been thinking and wondering a lot lately about what needs to come together to create a working company.  I’m not going to touch the issue of “successful,” company because that’s really impossible to quantify (at least for me), so instead I’m just going to look at what I think is needed to make a “working” company, defined as one that is growing, can meet all of its financial obligations, and support the entrepreneurs behind it.  As best as I can see it there are 4 inputs required to create a working company (all either provided or gathered  by the entrepreneur):

  1. time
  2. expertise (includes a network of contacts)
  3. money
  4. energy / passion
  5. **Luck

I struggled with putting energy and passion in this list because I think it is more important than any of those items, and it influences them all.  The odds are (and we always hear about this) the more passionate you are about what you’re working on, the more leverage you’ll have on everything else (time, money, expertise).  If you’re passionate, you will find a way to get all of those ingredients together.  In fact I would say that number 4 is more of the wildcard here.  It can make up for a huge defiency in any of the other items or all.  In fact I guess you could call passion/energy the leverage.  It helps you do more with less.

All of these are needed in some amount to get a company going.   If you’re extremely strong in one area you can make up for a weakness in other areas.  For example if you’re expert in building and managing sales teams, and your new business is in sales of some kind, it will likely take less time, money, and energy on your part to get things up and running.  If you don’t have any money, and you don’t have any expertise in the space you are hoping to work in, then you’ll need to devote a lot more time (and I hope you have the passion to drive you through it).

I added luck with a star because I think all companies need it.  The problem is you can’t really plan on good luck, you can only increase your odds of getting it through time.  The more time you’re able to buy yourself and your business, the more likely you’ll have some luck on your side.

I’m sure a lot of people will wonder where idea fits in all of this.  I”m learning that idea in most cases is not all that important.  It can really help people be excited about what they are working on, but I think mission can do more for making someone passionate.  The idea itself is usually just a starting point, a place to organize resources.  Rarely will the idea you start with be the one that works.  They usually evolve very quickly as more time, money, and expertise are added.

I’d say in my current situation I’m capable of providing some expertise, some money, and some energy…but my best contribution is my time.  Sometimes that really can be frustrating.  Without expertise or money to push things forward, you just need the time to experiment (and make a lot of mistakes).

When setting out to start a business, take a look at the list above.  What, at the moment, are you most capable of bringing to the table?  Are you OK with that?  Can you really give all that is required (especially in $$ or time)?

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Hot, Flat, Crowded -thoughts

Published on February 22, 2009 in books, business, climate change, personal and uniqe ability. Closed Tags: , , , , , , .

I recently finished Thomas Friedman’s latest book: Hot, Flat, Crowded and I loved it.  He does a great job describing the major problems facing our increasingly hot, flat, and crowded world, which include booming population growth, more energy demand, a changing climate, and rapidly accelerating biodiversity loss.  (Rapidly accelerating biodiversity loss is a topic covered in detail by A World Without US, a book I loved and recommend)

It’s hard to become aware of the some of the issues he discusses in this book (and even more so in A World Without US) and not feel  overwhelmed by the size of the problems.  We have very real issues to deal with, all of which more or less come back to a rapidly expanding human population (from loss of habitat, major energy problems, diminishing resources, and human driven climate change), and these generally are not things that can be fixed overnight.  What’s also frustrating is that these issues require solutions that require the ability to think and act in the best interest of the long term, something that I think 95% of people on the planet struggle to do, especially in government.  The US system, in my opinion, really suffers from horrible nearsightedness.  The way we elect our governing body, we really don’t provide any incentive for elected officials to look beyond 2, 4, 6, or at best 8 years.  It’s really hard to plan for and start to act on big things that take time, when people are judging you on your results today.  I guess all of this isn’t particularly hopeful…but that’s actually the opposite of how I felt coming away from the book.  I am very hopeful.

I’m hopeful because I see a shift. I see people moving away from recognizing these things as big problems, and starting to see them as Huge opportunities.  I’m going to put aside the “Obama” effect for now, although I do think it is very real and just focus in on more of what I’m hearing from people directly (or reading).  (By the way, when I say “Obama,” effect I’m talking about the hope for the future people seem to be experiencing as the result of him being in office.  I think whether or not you think he will be a good president is irrelevant, because I think the hope people feel is incredibly powerful and has already seeded great things to come in the future.  On a personal level,  just think how much more effective you are in doing whatever you do when you feel optimistic about it. ) Anyway, I”m very hopeful because it seems like more and more people I talk to are not only aware of these many issues facing us described in the book, but many are doing their part to create solutions.  And what’s even more exciting about those looking for solutions is that they are not doing things in a charitable way (doing good because it’s the right thing to do..which of course is far from a bad thing), but they are doing it because there are tremendous economic opportunities in these solutions.  In my countless iterations of personal and professional missions, I’ve always held the phrase “Doing good is great for business,” high on my list.  The problems we face today have come together to create the environment where that is absolutely true.  By seeking solutions, you’re creating tremendous opportunities for yourself, and the world.

I look to my friend Ross and his very dynamic company Univenture as an example of this.  Ross is what I think of when I hear the term “inventor / entrepreneur.”  He’s built quite an amazing company in Univenture through his constant tinkering.  A few years ago he saw the cost of plastics rising quickly.  Plastics are a big cost for a company that creates plastic cases.  He wanted to find a way to cut his expenses.  He also was troubled by the long term effects of putting all these plastic products out in the world, so he sought to create a new solution, one that would be a win/win.  He’d have lower and more stable material costs, while significantly reducing his long term environmental effects.  Through his constant tinkering he discovered a way to create usable, plastic like material from algae.  In his experimentation with Algae, he’s discovered all sorts of opportunities…everything from waste processing to bio-fuel.  He’s pumping significant amounts of money, his money, into algae exploration. He’s got a readymade buyer for his algae based plastics (his company), and he’s got the entrepreneurial experience to create real business opportunities from his other discoveries.  He’s creating another real business that will make the world a better place both economically and environmentally…a true win/win.

Another one of my favorite businesses that is making a big difference through a simple improvement is a company called BigBelly Solar. I don’t know anyone from the company personally, I’m just admirer, but I have read up on them quite a bit.  Basically they are trying to cut down on litter, habitat destruction fuel use, carbon emissions all through an efficient trash can. Yes, a trash can.  How?  Simple (apparently).  They have created solar powered trash compactors (there are a few here in NYC, including one by my apartment in Union Square).  The compactors (powered by the sun) mean that the trash cans have to be emptied less often (let’s say 2 times a week instead of 6), which means you have less overflow litter and significantly lower fuel use by garbage trucks that have to drive around and collect.  It’s truly a win/win, and one heck of a business I would bet with true international potential.

I could go on and on with stories like those above that make me excited and hopeful (by the way the opportunities extend far beyond doing “green,” things…there are great opportunities to empower people, such as a service I love called edufire) I think more than ever people are realizing the scope of the problems we face, and seeing those problems as huge opportunities to create, huge opportunities to be entrepreneurs.  I think that’s really exciting…a new era where being a successful entrepreneur is about creating a win/win/win situation for yourself, employees and customers, and the planet as a whole.  I want to be part of this new group.

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Opportunities in the moment

Published on February 3, 2009 in business, nyc and tech. Closed Tags: .
TAXI in Curitiba-PR, Brazil.Image via Wikipedia

I’ve been meaning to write something on Fred Wilson’s post last week on job losses here in the US, noting that the announcement last week of 75,000 jobs being wiped out in one day exceeded the amount of jobs he had helped create in 22 years of venture investing. Wow.   He goes on to say that we need people going out on their own to help us get through this.  I agree.

I think going out on your own can mean a lot of things, and doesn’t necessarily being an entrepreneur as most people think.  You don’t have to know how to build a business or raise money or hire people, you have to know how to capitalize on your unique skills and abilities.  You have to know how to find opportunities that exist right now in your life, all around you.  I really liked this comment on Fred’s post elaborates on this better than I can:

An anecdote to illustrate the point of the awakening of entrepreneurial impulses in the population: a cab driver that took me to SFO airport from a recent JP Morgan Healthcare conference told me that he has been asking himself, what can he do better in this grim environment. His decision was to focus on nurturing and growing his local clientele, to increase their loyalty to him, and to bypass convention traffic, as it would not mean return business. – Now if everyone from cabbies to white collar folks is asking, what can they do better and how, wouldn’t that necessarily lead to a bump in productivity, perhaps an unexpectedly meaningful one? I hope so. Same for previous non-entrepreneurs becoming entrepreneurs – in some sense, it is a numbers game – if enough of them build highly scalable, fast growing businesses, VC-backed or bootstrapped, it might have a strong enough effect to at least dampen the fall we are in. I choose to remain a long-term optimist, if wounded at present.

I’ve been saying for a few years now that I think more and more people will eventually beome their own mini companies and create a world where we are more likely to be sole proprietors than employees.  I think it’s  likely that people will work on “projects” instead of working for companies in the near future.  Think I’m crazy? This process has already started.  You can see it on sites like elance.com, odesk.com, 99designs.com and many, many more.  These sites are filled with very talented people who are building thriving businesses (some one man shops, some have several people) focused on doing what they do best, whether that be design, programming, sales, or whatever. Now these sites are by no means perfect, and they certainly are not capable of having a major effect on the economy at the moment, but I think they could be a starting point for something that may.

I can’t help but think of all the amazingly talented, smart, hard working people out there who are not working at the moment.  To quote a friend that’s an “incredible waste of national resources.”  People are not losing their jobs because there is no work to do, in fact there is more work to be done now, it’s just that no one has figured out how to tap those resources.  Isn’t there an answer in the elances of the world? If we could figure out how to tap the incredible worldwide design talent by using a marketplace like elance,  can’t we expand that to put some of these people to work?  Doing something they are good at (and most likely enjoy)? Just a bit of rambling…

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I”m back / 4 hour workweek / startup

Published on January 28, 2009 in business. View Comments Tags: , , , .
WASHINGTON - MAY 03: Fitness legend Jack LaLa...Image by Getty Images via Daylife

It’s not that I stopped writing blog posts, it’s just that I stopped posting them here.  I find that I’m constantly writing out thoughts, but I struggle consistently posting them here.  Instead I usually will email them to a few different people to get feedback.  I realized today that I could simply edit those emails and start posting them here.  So the 3 of you that still check my blog…I”m back.

My partner Chris and I have been having some long discussions lately about working more efficiently (more work in less time).  He has been inspired by the 4 hour workweek (which I read a little over a year ago).   I think there are a lot of great thoughts in that book, but I really don’t think it’s likely you can start a successful business following all of his guidelines.  Chris and I have been back and forth on this.  Here is my latest email on the topic (sorry if it is a little jumbled).

I’ve been thinking about this,the slippery slope of trying to work super efficiently.  I’ll admit it is a struggle for me.  On one hand I get very excited about the idea of “getting 8 hours of work completed in 4 hours,” and I think striving to do that could really make some interesting things happen like better delegation / outsourcing skills, and being more relaxed.  But on the other hand I’ve been racking my brain thinking about “successful” entrepreneurs I know. By successful I mean those who have built a business that more than pays their bills, they have a great team around them, and lots of upside potential.  Some of these people I’ve known for awhile, others I met recently…but one thing I know for sure: they are all VERY active.  I realize that the 4 hour workweek is not about only working 4 hours a week, but really about delegating and confronting simple tasks as quickly and efficiently as possible.  Part of this approach is really about attacking email, encouraging people to cut down significantly on the time they spent writing and responding to emails.  I agree 100% here.  I think email must be controlled or it will control you.  But I think other things in the 4hww are just not practical for entrepreneurs.

Building a business to me seems a lot like building and maintaining physical fitness.  They are actually very similar…as most people want to be “fit,” but very few people (myself included) really do everything it takes to be fit.  When it comes to working efficiently vs not working there are parallels as well. There’s no doubt that you can truly “get a body like this with just 30 minutes of exercise, 3 times a week,” as they say in those Bowflex commercials.  The problem is very, very, few people work themselves hard enough in those 30 minutes for that to be true.  Even worse the way that is written I think most people assume then that exercising and getting fit should be easy, so they slack off even more, cutting their sessions to 2 times a week, then 1, then it’s a piece of crap in your basement.  They also get pissed and annoyed that they are not fit, despite doing what the commercial said.

I think the Tim Ferris mantra is like the 30 minute quote above.  It is absolutely possible to build a successful business with just 4 hours of work a week, or 4 hours of work a day.  The problem is that most people don’t know enough about entrepreneurship and/or their business to really effectively use those 4 hours of work a week / a day.  So if they do truly just work the 4 hours a day  / week, they don’t get enough finished to really make the business work, and it becomes a piece of crap in your basement.

I completely agree that most people (myself included) simply do not work efficiently, and don’t delegate properly.  But like exercising, you really can’t know what are key exercises to do in order to only workout 30 minutes a day 3 x  a week, until you spend a fair amount of time learning and doing lots of routines.  It means you’ll try a lot of crap that won’t help in order to find the ones that do help. Unfortunately in order to test a lot of things, it’s going to take some time.  So if you are only exercising the 30 minutes a day, it’s
going to take you a lot of days to get to a working routine.  That’s ok, if you’re aware of that and comfortable with that (most people aren’t).  Or you can try to speed things up a bit by spending more time. Yes you’ll have wasted time, but with good tracking and patience, you’ll get something that works.

It seems that in building a business or getting physically on track, the most important part at the start is showing up.  That sucks because you may waste a lot of time you think you don’t have, but it seems like the only way you can make the mistakes you need to make to learn the lessons you need to learn.

Furthermore people who are successful in either (being very fit or entrepreneurship) tend to do several things:
-enjoy it
-constantly grow, learn, and redevelop themselves / their routines / their business
-spend more and more time doing it, the better they get, despite being more “efficient” (which seems to kind of challenge 4hww a bit)

Maybe if you’re spending a lot of time trying to not spend time on the work / business you are in, you shouldn’t be in it in the first place?

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To-do or Didn’t do list?

Published on October 31, 2008 in business and goals. Closed
Things

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In my first week in awhile of being more systematic about my todo list, I’ve decided to grade my effectiveness this week and it wasn’t pretty.  Of the 50+ items I had on there (some as simple as write and mail thank you note or email so and so), I probably completed around 50%.  In the past I used to make todo list items such as “launch website,” which really is a project and not a todo item. As a result the project was the item on the list I would avoid because it required too many steps before crossing it off.  A year after reading Getting things Done, I’ve gotten better at what I put on the list, but it is a work in progress.   If my todo list has been filled with projects instead of tasks, then I would have considered 50% very good, but I can’t use that excuse this time.  I simply didn’t get enough of my tasks going to make progress.  At least now I can see where I fell behind, and start to ask “Why?”  Some thoughts:

  • Email is a major time sink. I’ve know this for a very long time, I’ve even written about it, but I continue to fall for it.  There’s just something so satisfying about getting and responding to messages.  I also know that the constant flow of email helps to overcome the loneliness when you’re working virtually (and not in an office).  I would estimate that 30% of all email activity could be called “productive.”  The rest is really distraction.  And on that same thought, I would say that email unless controlled and managed properly, causes more harm than good.  I guess I’m an addict.  In fact thinking about how it feels to sit at my desk with my email closed, I can picture the anxiety and the sense unknown.  If there aren’t emails to respond to or write, then what in the world shall I do?  So my goal next week is to try some email rules such as only checking it at certain times of the day (a la 4 hour workweek)  I am going to test this firefox plugin to assist with this.
  • Task scheduling – We all have things we don’t really want to do.  I’ve found that by some strange coincidence, of the unfinished items on my list for the week, a vast majority of them I was not looking forward to working on.  I avoided them basically.  I avoided them because they were boring, or scary, or too hard, or in direct conflict with a comfortable habit.  The only time I ever really considered working on these tasks was at the end of the day, and then it was easy to say “well I do that tomorrow.”  There’s no doubt some of these items weren’t completed because frankly they were unnecessary, but for the rest of them I allowed myself to not do them.  In order to “set myself up for success,” I’m going to put reminders in my calendar to complete these tasks at a time in the day where I feel at my best.  I think for me the optimal time to “face the music” is between 11am and 2pm.  I will set reminders for 11am.
  • Too much wiggle room – I will pat myself on the back for creating a weekly todo and goals list on Sunday afternoon and really taking the time to think the week through, but I left out a very critical component of this: reviewing it daily.  My plan was to combine my weekly goals / todo list with my working system of writing daily tasks in a notebook each morning, crossing off completed items and adding notes throughout the day.  The interesting thing was I stopped using the notepad completely this week, almost as if I didn’t need that after doing the work on Sunday.  I’ve known for awhile that I can significantly boost productivity simply by creating my todo list the day before in my notebook, and then trying to complete as many tasks in the first hour of my day as possible before checking my email.  I’ve done this several times with amazing results, yet I keep reverting to old habits.  Next week a goal is to return to this system.  I’ll compare my paper todo for the day vs my google doc for the week each night / evening as well as prepare the next day’s list.

So those are some thoughts from my big push to developing my personal organization and task management system.  Perhaps I’ll keep updating as I refine and improve…in fact if I do (keep posting) then you’ll know I”m doing well with following my weekly goals.  A goal for this week was to get up at least 2 blog posts…this takes me halfway there.

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Warren Buffett on Charlie Rose

Published on October 2, 2008 in business. Closed

Warren Buffett spent an hour with Charlie Rose yesterday.  I highly recommend anyone interested in getting a better understanding of the current situation to watch this (along with some discussion on taxes, past bubbles).  Buffett really has a way of explaining things in an interesting, witty, and playful way, but even more importantly a way anyone can understand.  He is so even, it’s easy to see how he is able to not get pulled in by the greed on the way up, and not pulled down by the fear on the way down.  Right now we’re surrounded by fear, but he sees many opportunities.  Admittedly he doesn’t expect things to turn around tomorrow,  but he does feel very strongly in the prospects for the future.  It’s very likely that in 5 years people will look at GE at $22 a share and say “wow that was cheap.”  Anyway, spend some time to watch this.

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YouTube – Famous Failures

Published on May 23, 2008 in business. Closed

great video on failure

WSJ – Bubbles

Published on May 19, 2008 in business and stocks. Closed Tags: , .
A rendering of the NASDAQ Composite index from 1994 to 2005, showing the stunning peak in early 2000 that coincides with the dot-com bust. The data in the file is daily, so you can get some very good resolution from it if you want to.Image via Wikipedia

Here’s a great article on bubbles from Friday’s WSJ. I think this is a great definition of just exactly what a bubble is, whether tulip bubble or dotcom bubble:

Bubbles emerge at times when investors profoundly disagree about the significance of a big economic development, such as the birth of the Internet. Because it’s so much harder to bet on prices going down than up, the bullish investors dominate.

So you need uncertainty, but more of the talk needs to be optimistic than pessimistic.  The optimists  really play on the uncertainty as a reason for the valuations, and the pessimists are silenced by the lack of evidence.

Once they get going, financial bubbles are marked by huge increases in trading, making them easier to identify.

Also:

“The two most important characteristics of a bubble,” says Wei Xiong, are: “People pay a crazy price and people trade like crazy.”

I don’t think anyone watching the dotcom’s in the 90’s, china in the 03-06, and dare I say commodities in the last few years would deny this. I would argue that bubbles are easier to spot than we think.  If you are removed from greed, and able to stay somewhat rational, bubbles are usually very obvious.  Was it really reasonable to say that the value of your home would never go down? Of course not.  Was it reasonable to say that pets.com was worth $10B with no revenues? No way.  But the problem is no one wants to be left behind.  When your cab driver tells you about how much money he made in internet stocks, it’s officially a bubble. So if people are able to call a bubble, why can’t they trade it effectively?

Manias can persist even though many smart people suspect a bubble, because no one of them has the firepower to successfully attack it. Only when skeptical investors act simultaneously — a moment impossible to predict — does the bubble pop

It is only when prices start to fall heavily that bears can really start to come out and play, further accelerating the sell-off.  This, according to the article, explains why things seem to go down so much faster than they go up.  It’s really a rapid switch from greed to fear.  People start looking to get out at any cost because the fear of losing their money is overwhelming.  So are there any bubbles today?

I think so, although nothing is quite at that mania level…yet.  I do believe that for the moment some commodities have gotten ahead of themselves in terms of price.  I think that oil, for example, seems to fit the definition of a bubble…solid fundamentals (can anyone really argue the fact that there is dramatically increased demand on a finite supply?), rapid trading, and incredible gains.  On top of all that it seems just about every “expert” out there will tell you that oil is going higher.  Based on the little I know, this seems like a bubble to me.  The article says:

Today, there’s disagreement over commodity prices: to what extent do they reflect fundamentals like Chinese demand, and to what extent investment mania? Trading points toward a bubble: Daily volume on crude-oil contracts is running 50% above last year. Yet the initial findings of work Mr. Hong has done with Motohiro Yogo of the Wharton School — comparing cash prices and futures prices — suggest that “prices for commodities are expensive,” but not a bubble, Mr. Hong says.

I guess another bit of evidence that suggests a bubble is that there some bears out there who would like to short oil (at least in the short term…myself included) but are simply afraid.  They (we) believe the price is a little ahead of itself and is due for a pullback, but the bulls are just piling on to quickly.  It really seems to be running out of control.

Anyway, for me the most the interesting thing about all of this is that you can talk numbers, charts, pe’s, trends, etc all you want but at the end of the day the market moves because of people, and people act in a very predictable, yet irrational, way.  The stocks change, the success metrics change, the valuations change, and the businesses change, but people still are people…driven by greed and fear.   If you can figure out how to read these signals objectively in the market, you can really become an expert investor.  I’m trying to develop a better system here.

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