This Time is Different (Because Math Isn't)

John Fischer, PhD

SpaceX to the Moon? If it Grows like Amazon!

*S&P 500. Assumes SpaceX grows at the same rate as Amazon since their IPOs, and that the entire market grows at its historical rate from the time of the Amazon IPO.

The most dangerous sentence in finance is “This time is different.” We ignore history at our peril. Boom-and-bust cycles are a product of human nature itself. But sometimes a little math will identify clear differences between then and now.

You may remember the tech bubble of the 1990s and the crash that followed. Celebrated high-flyers crashed to Earth: Enron wiped out $65B in shareholder wealth from its peak, and WorldCom burned $175B—when a billion dollars was real money!

Other stocks made investors wealthy beyond their dreams: from its initial public offering in 1997, Amazon stock has compounded at nearly 32% annually. A $1,000 investment has soared to over $3M today (despite a tumble of nearly 95% early in its journey).

Bubble or not, the enthusiasm surrounding artificial intelligence is undeniable. A question many investors may ask: Can these exceptional companies coming to market deliver Amazon-like returns?

What does the math say this time? Amazon went public at a valuation of $300M in 1997 and closed at $438M the first day. For a company launching at a $1.8T valuation to follow the same trajectory, it would rapidly eclipse the entire market!

Today companies are staying private longer and going public after early (private) investors have captured the lion’s share of the value. For public market investors expecting life-changing wealth, it seems safe to say "this time is different."

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