I like to say that Internet valuations are based on discounted cash flows, but in a warped sort of way. One of my colleagues did an analysis last fall that applied DCF logic to the valuations of a bunch of tech companies. That is absolutely amazing. We can't figure out what's going to happen 2 years from now with these companies, so when we try to look as far as 8 or 10 years from now, it's just massive guesswork. That is a crucial driver of volatility.
Tech companies live and die by big, incremental margins.
A small top-line shortfall causes tremendous damage down through the bottom line, as each element of the business model starts to rock like a rickety old ladder. And we have plenty of shortfalls. You change your investment model, and you look for different clues about how companies are going to perform in the future. Over the past few years, the equity market has been conducting a large-scale experiment with Internet companies. It has morphed into an upscale venture-capital market.