The I-Don't-Understand-It-So-It-Must-Be-Valuable Valuation
Markie loves Groupon, and I'm not complaining much when she buys a 50% off coupon for dinner someplace for 50% of the value of the coupon… essentially making it a 25% off coupon, but that's another story of math and human thinking. No, today's story of math and human thinking is about the way the stock market values companies.
Groupon just got a 25 Billion dollar valuation. Billion. That's the word that Carl Sagan would over emphasize to try to get the vastness of the Cosmos across to the layman. Apparently he failed to give scope to the word Buh-illion when you have traders on Wall Street giving an online coupon book a valuation greater than the Gross Domestic Product of El Salvador. And 118 other countries, for that matter (see Countries less valuable than Groupon Apparently Facebook currently has a 75 Billion dollar valuation, placing it just above Qatar of value versus GDP.
Granted, the GDP of a country is not the same as the value of the country, but if Groupon was a print product, it would be one of those coupon books the kids sell to finance band instruments or football trips. If Facebook was a print product, it would be the nickel ads with ample room for personals.
The problem is that these things are new and shiny and the masterminds who brought us mortgage securities and junk bonds are in L-O-V-E with anything 'Social' (ironic when you consider stock brokers aren't exactly on the A-List at most trendy night clubs, even if they own the trendy night clubs…)
But, think about the whole mortgage crisis for a moment. The reason it worked so well to make so many people money (people on Wall Street that is) is because it was so damn confusing that very few people (people not on Wall Street, that is) understood what the hell they were buying and selling.
Social Media companies are perfect vehicles for Three Stock Monte games -- no one really knows what Facebook is, and that bizarre phenomenon of kids, grandmas, players and innocent schoolkids are all playing into the chaos casino we call the stock market.
The most beautiful thing about this game is that the big players, like Facebook and Twitter, aren't even publicly traded, which makes those valuations even more vaporous. And more powerful.