Peter Thiel, one of the early backers of Facebook, is concerned about “the frothiness of the markets.” At a conference about the future of the payments system, Thiel responded to an audience question about values. He said: “Startup tech stocks may be overvalued, but so are public equities, so are houses, so are government bonds.”
Venture capital and private equity can generate much bigger returns than you or I because they pay a lot less for their original stake. But they’re taking more risk. If they measure the risk correctly – and back the right winner – the pay day is huge. The public is left with table scraps in an initial public offering.
At that point, it’s simply a question of how much growth there is and how much you should pay for it. There is a lot more growth in technology stocks than government bonds (even though the supply of government bonds is likely to grow in coming years). Owning shares in fast-growing publicly traded stocks – real companies that create real value and have real sales – is going to be a much better strategy than making 8% on government bonds.
There’s no reason you can’t do both, of course.
Category: Market updates