86 ATaleofTwoMarkets
basic facts of business life that call for investing based on an un-
derstanding of a company’s business climate; some key ratios must
be in the tool box of all smart investors. Even if some of the new
economy business metrics are used, they should be analyzed criti-
cally. Ignoring losses is foolish, but ignoring signs of endurance is
downright stupid.
If you accept growing market share as an indication of future
value, for example, you also have to recognize that slowdowns in
customer growth are a sign of reduced future value. You must agree
that when revenues per new customer fall while costs per new cus-
tomer climb, you go from uncertain to bad. These facts are char-
acteristic of many Internet companies whose stoc kprices actually
rise on this kind of news. These companies include some of the best
names in the “space,” giving reason to thin kthat the new economy
may just be a wolf in sheep’s clothing. After all, something that
seems too good to be true usually is.
People tal kof the new millennium and the unmatched pace of
technological change, but this impression is mistaken. If you comb
through the annals of economic and investment writing over the
centuries, you will discover repeated periodic references to the rapid
pace of technological change and declarations that nothing like it
has ever been seen (historians dubbed the late 1890s and early 1900s
the Age of Optimism, imbued with technological excitement that
makes centennial turns seem the natural apotheoses of exuberance).
Just pause to consider the printing press, the agricultural and in-
dustrial revolutions, the assembly line, television and radio, and now
computers and the Internet.
Even the sober Ben Graham felt constrained to report on the
sense of his time, writing in the relatively recent period of the early
1970s that: “the rapid and pervasive growth of technology in recent
years is not without major effect on the attitude and the labors of
the security analyst. More so than in the past, the progress or ret-
rogression of the typical company in the coming decade may depend
on its relation to new products and new processes.”^18 To repeat what
Graham was fond of saying,plus c ̧a change, plus c ̧a la meˆme chose.
THE LONG RUN
The attitude that drives any mania is as shortsighted as it is short-
lived. Investors need to loo klong down the road of years rather than