Remember the 1990s?
Those were heady, high-flying financial times, with the tech stocks booming on Wall Street.
Portfolio values were on a seemingly endless upward path.
Serious people (at least in some eyes) were talking about the end of the business cycle with its inevitable ups and downs.
Growth, we were told, was destined to be permanent.
It was the time to sweep out the old and bring in the new. That dusty old fogey, Warren Buffett, was being dismissed as a financial has-been. His corporation, Berkshire Hathaway, refused to invest in tech companies, because Buffett had the audacity to say he didn’t understand what they did or how they made money.
How quaint. And how accurate.
When the dot-com bubble burst, Buffett was standing tall, while many of those Internet companies collapsed and vanished.
Why? Because the business cycle hadn’t gone away, it was just waiting to re-establish itself. The excess and greed of the era meant many investors were operating with blinders. They ignored the reality that Buffett easily understood: Even the most modern of corporations have to make a buck in order to survive.
When the bottom fell out of the tech market, hard lessons were learned. People investing in these companies demanded results — profits and real growth. That’s the way it’s supposed to work.
But then came Facebook. Here was an Internet behemoth with literally hundreds of millions of customers creating billions of hits on its website. How could it not make money for investors?
Well, here’s how:
Last week Facebook released its first quarterly earnings report as a publicly owned company. While the report met Wall Street estimates with a 32 percent increase in revenue, that figure represented a slide in growth of 45 percent from the prior quarter.