I'm back in 1990

Chapter 529: Publication

On Valentine's Day, the world's top economics journal, *are*, published a paper titled "The Hidden Worries of the Internet Boom: Market Irrationality in the Technological Revolution from the Perspective of Historical Bubbles."

论文通过对比19世纪时期的铁路泡沫、20世纪20年代公用事业股热潮以及80年代日本资产泡沫等历史相关数据，再结合1995年至1999年纳斯达克市场数据，明确指出当前的网际网路行业估值与基本面严重背离。

The paper also provides a detailed data model.

For example, the median price-to-sales ratio has exceeded 40 times, and the average first-day increase of companies listed on Nasdaq in recent years has reached 230. These data indicators have far exceeded the historical safe threshold.

The paper uses a discounted cash flow (DCF) model and finds that 75% of internet companies cannot achieve a positive net present value (turnaround) within ten years.

In the abstract, the author warns investors of the risk of a liquidity reversal (a sharp stock market decline).

Huang Xiaochuan has been collecting relevant data for the past few years, and Zhang Yun has provided him with a large amount of relevant data files and materials from all economics journals.

Huang Xiaochuan compiled and used this data to prove the assertion that the Internet industry is unsustainable.

The data sample comes from 382 Internet companies listed on Nasdaq (between 1995 and 1999).

According to publicly available financial reports, 89 of these internet companies have negative free cash flow, and 60 of them have revenue growth rates lower than marketing expense growth rates (in short, they are spending more than they are earning).

Moreover, due to investors' blind enthusiasm, the valuations of these companies were distorted. For example, in 1999, a total of 292 technology companies went public, with an average increase of 230% on the first day of trading, while in 1996, this number was only 60%.

Furthermore, calculations using historical regression models indicate that the rate of these stocks falling below their initial offering price within three years is expected to exceed 70%.

The paper also bluntly points out that certain interest groups have been using the "new economy" story to cover up the profit logic, misleading ordinary investors and causing them to have cognitive biases.

For example, using a few isolated success stories to explain everything, such as always using Amazon's early success as a reference, using one success to cover up a large number of failures.

In addition, the psychological tactic of "missed opportunity panic" was used, causing the stock turnover rate of ordinary investors to soar from 15% in 1996 to 45% in 1999, a full threefold increase.

Other tactics include using misleading public opinion, investment banks issuing high ratings, and some unscrupulous stock commentators and analysts misleading investors.

The paper lists these informational cases one by one, after all, the newspapers and magazines published back then cannot be erased, and they are all recorded in black and white.

The paper does not only issue warnings, but also offers many suggestions in the second half.

For example, increasing the margin requirement and requiring IPO companies to disclose their profit path over the next five years.

Companies planning an IPO are advised to first validate their transition to a unit economics model to identify a reasonable growth pattern, rather than blindly relying on the traditional cash-burning model.

It is also recommended that investors allocate defensive assets (stable-yield financial products such as government bonds and other low-risk financial products).

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The paper also included a scenario simulation to clearly demonstrate to readers the path of the bubble bursting and the impact that would follow.

The paper hypothesizes that due to the Federal Reserve's interest rate hikes, a leading internet company's financial report reveals a significant financial crisis, leading to a return of cross-border capital.

This will then lead to a drop in stock prices, venture capital withdrawal, and internet companies that lose funding to lay off employees. As unemployment rises and the stock market crashes, consumer confidence declines, which in turn drags down the real economy.

Therefore, the author also described the worst-case scenario, predicting that the Nasdaq index would fall by more than 50 points and the unemployment rate would rise by 2-3 points.

To demonstrate the authority of the data, the article specifically cites documents from authoritative institutions such as the Federal Reserve report, Gartner technical curve, and CRS database to verify the authority and reliability of the data sources.

This paper also briefly explains the causes of the internet economy bubble.

First, the rise of the Internet was caused by technological revolution; second, the rampant speculation of capital; third, the loose monetary environment and policies; fourth, irrational prosperity and herd mentality (the media fueled the hype, proclaiming that the Internet would change everything and creating a fear that those who did not participate would fall behind); and fifth, the flaws in the business model.

At the end of the article, the author states that the Internet was originally a revolutionary technological breakthrough, but excessive hype led to a bubble. Once the hype subsides and the bubble is squeezed out, the Internet will usher in a new era of development.

This paper was written by Huang Xiaochuan, and before it was officially published, only the old man and Zhang Yun had read it.

As Huang Xiaochuan expected, the paper immediately attracted widespread attention after its publication.

For a moment, one felt a sense of lament, "Why did Heaven create both Zhou Yu and Zhuge Liang?"

That evening, he led his students to conduct simulations and calculations on the relevant models and data in the paper. The results were obvious: the author's data was detailed and reliable, the model was built to a very high standard, and it was very easy to use.

Even though it was already 1 a.m., he still called one of his financial advisors.

"Evans, I'm sorry to bother you so late, but listen carefully, what I'm about to say is very important. I want you to sell all the shares of my internet company that I own after the market opens today. Yes! Sell them all."

Meanwhile, many economists are studying this paper. There have been many papers with similar titles in the past, but they are all general and do not have detailed models and data for reference, so they have not attracted much attention.

However, this paper is different. Its content can withstand scrutiny. It describes the entire development process of the Internet in detail, with historical data and information to support each point, as well as comparative cases. Considering the paper's prediction that the Internet economy bubble is about to burst and the scene of its bursting, scholars are all sweating bullets.

It seems the internet winter is really coming!

These scholars knew that the internet economy was overheated, but they didn't know when the bubble would burst. Now, after seeing this paper, they know that moment is coming, and perhaps this paper is the last straw that breaks the camel's back.

However, due to the market's huge inertia and the fact that the paper is still circulating within academic circles, the financial market has not reacted much, and a large number of retail investors are still pouring into the financial investment market.

The Nasdaq index is heading towards the 5000-point mark.