Jeffrey Funk and Gary Smith, well known to many of our readers, have just published an article at MarketWatch, warning against heedless optimism about “unicorn” stocks. As they put it, “The stock market unleashes its ‘animal spirits’ on an animal that doesn’t exist.” They begin by pointing out that most new businesses flop.
The president of one venture capital company estimated the chance of success at one in 1,000. An SEC study of 500 randomly selected new issues found that 43% were confirmed bankrupt, 25% were losing money but still afloat, and 12% had disappeared without a trace. Of the remaining 20%, just 12 companies seemed solid successes — a scant 2% of the companies surveyed.Jeffrey Funk and Gary N. Smith, “Opinion: Bullish optimism boosting ‘unicorn’ stocks is more like delirium — and a harsh dose of reality is coming” at MarketWatch (August 17, 2021)
Consider how several prominent unicorns have fared over their years of existence. Now in its 18th year of operation, Palantir Technologies’ PLTR cumulative losses have grown to $6.2 billion while Airbnb’s ABNB cumulative losses have grown to $7.2 billion in its 14th year, Snap’s losses SNAP exceed $8 billion; Lyft LYFT $7 billion, and Nutanix NTNX $5 billion. Recent estimates for WeWork, which has not done an IPO, put its cumulative losses at about $10 billion as of March 2021. Uber Technologies UBER dwarfs them all, with cumulative losses currently exceeding $23 billion.Jeffrey Funk and Gary N. Smith, “Opinion: Bullish optimism boosting ‘unicorn’ stocks is more like delirium — and a harsh dose of reality is coming” at MarketWatch (August 17, 2021)
So why do people keep investing in new high-tech money pits? Funk and Smith explain clearly in more detail at MarketWatch. But the skinny is:
Huge pre-IPO losses don’t seem to matter much to the venture capitalists who pump in more funding until investors can be persuaded to buy publicly traded shares at inflated prices. Nor do the post-IPO losses seem to have had much effect on stock prices. Hopes and dreams die slowly.Jeffrey Funk and Gary N. Smith, “Opinion: Bullish optimism boosting ‘unicorn’ stocks is more like delirium — and a harsh dose of reality is coming” at MarketWatch (August 17, 2021)
They are staying around long enough for you to buy in and then they can cash out.
Funk and Smith also list startups that made a profit. So don’t give up on the market. Read the stats and choose wisely.
You may also wish to read: Failed prophecies of the big “AI takeover” come at a cost. Like IBM Watson in medicine, they don’t just fail; they take time, money, and energy from more promising digital innovations Business profs Jeffrey Funk and Gary Smith compare the costs vs. benefits of AI hype vs. small innovations that change the world.