Bubble Trouble

Bubble Trouble!

“Don’t be caught swimming naked when the tide goes out” – Warren Buffett

A quick thread on the frenzied current digital investing environment:

1/ And a bubble (yet) again?! But I guess it never stopped apart from the Covid headwinds from Apr-Sep 2020 & is now at peak levels! The good news is that “this time it’s different!” (tongue in cheek - it never is and hopefully signals the peak!)

2/ “Valuations ahead of fundamentals is froth and devoid of fundamentals a bubble” – that’s what we said in 2015! And called that bubble “froth” (sorry! - so caveat emptor)! But it seems true this time - never have I seen companies get traction so quickly! The market has FINALLY deepened!

3/Zomatoand other upcoming IPOs *are the difference* that matters - once public markets open up to a disruptive sector, it reaches its ultimate stage of acceptance & stability! So while bubbles burst - and they *always* do - the new base is higher in a deepening market

4/ In the US comparisons are being made to 1999 & the dot com bubble! But, having worked in US tech investment banking exactly at that time, while the velocity and volumes are as crazy - and valuations 2-3 years ahead in some cases - they not imaginary as they were then given massive consumer adoption & real businesses now!

5/ So where I net out is that there *is* a bubble, it *will* burst, I have no idea when (duh!) but eventually a bunch of awesome companies will be created over the next decade as India’s digital decade+ time in the sun has arrived!

6/ I believe investors’ money will be lost in this phase, especially the FOMO investing kind, and this vintage may not turn out well, but the good news unlike last cycles, given businesses & business models are real, hopefully later stage companies will see flat not down rounds

7/ And what to speak of the founders - never seen better quality! This has been a consistent theme over the last decade and a half and it keeps getting better - and now a bunch of experienced founders are starting out which is very exciting!

8/ BTW the best founders see the bubble for what it is and one particularly wise one said “I will be aggressive on raising & conservative on spending”. Fund raises don’t fix business models!

9/ Also an investor of a similar vintage as mine (but wiser) remarked - “Avnish you and I are so old that we worry a lot about bear markets which, while they are brutal, are short & the bull markets are long and fun!” So in my new decade I shall try not to worry too much!

10/ What the above turns on is whether one believes in the fundamentals underlying the markets and on that I am unabashedly long India digital for next decade+!

11/ So we will try to stick to our knitting, not get carried away by FOMO, keep the seat belts tightly fastened and enjoy the ride! And when the eventual bust comes, remember all the +ves above and continue to invest apace!