Everything You Remember About The 1990s Is Wrong

Bill Clinton

Photo: nostri-imago

As we deal with an under-employment crises that refuses to go away, the 1990s are now remembered as an age of prosperity that only got out of hand in a tech bubble at the end of the decade.But that’s not what happened at all.

Peter Thiel – the billionaire Facebook investor, former PayPal CEO, and Palantir cofounder – taught a class at Stanford this Spring.Going through student Blake Masters’s notes on the class we discovered a lecture from Thiel on what actually happened in the 1990s.

In it, Thiel says that times were not as good as we remember them. He argues that we may have learned the wrong lessons from the tech bubble and bust that ended the decade.

We’ve lightly edited Thiel’s words to re-package the lecture as a presentation.

The 1990s could be said to have started in November of '89. The Berlin Wall came down. 2 months of pretty big euphoria followed. But it didn't last long.

From 1992 through the end of 1994, it still felt like the U.S. was mired in recession. Culturally, Nirvana, grunge, and heroin reflected increasingly acute senses of hopelessness and lack of faith in progress.

Worry about NAFTA and U.S. competitiveness vis-à-vis China and Mexico became near ubiquitous. The strong pessimistic undercurrent fuelled Ross Perot's relatively successful third party presidential candidacy.

George H.W. Bush became the only 1-term President in the last 30 years.

At that time, Japan seemed to be winning the war on the semiconductor. The Internet had yet to take off. Focusing on tech was idiosyncratic. The industry felt small.

It was Netscape's IPO in August of 1995—over halfway through the decade!—that really made the larger public aware of the Internet.

They priced it at $14/share.Within 5 months, Netscape stock was trading at $160/share.

Bill Gates promptly ordered everyone at Microsoft to drop what they were doing and start working on the Internet. IE came out shortly after that and Netscape began rapidly losing market share.

The first three years after Netscape's IPO were relatively quiet; by late 1998, the NASDAQ was at about 1400—just 400 points higher than it was in August '95. Yahoo went public in '96 at a $350M valuation, and Amazon followed in '97 at a $460M valuation. scepticism abounded.

This pessimism was probably appropriate, but misplaced. Alan Greenspan delivered his famous irrational exuberance speech in 1996—a full 3 years before the bubble actually hit and things got really crazy.

1997 saw the eruption of the East Asian financial crises which brought the Thai, Indonesian, South Korean, and Taiwanese (to name just a few) economies to their knees.

In 1998, the Ruble crisis hit Russia.

Then came the Long-Term Capital Management crisis. But for a multibillion dollar bailout from the Fed, seemed poised to take down the entire U.S. economy with it.

The Euro launched in January 1999, but optimism about it was the exception, strong scepticism the norm. It proceeded to lose value immediately.

By the late '90s, a process of elimination left only one good place to put money: in tech.

In 1999, VA Linux went public at $30/share. It quickly traded up to $300. 10% owner Larry Augustin became a billionaire.

6 month later, by the end of the lock-up period, the stock lost 90% of value. Augustin ended up with 5 or 6 million dollars, which is still a lot of money. But it's not a billion.

A rolling wave of collapse struck; marketing-driven e-commerce companies failed in the first half of 2000, and B2B companies failed in the second. The telecoms followed in 2001.

The key takeaway for most people was that the tech explosion of the late '90s was all a bubble. High profile investors like Warren Buffet avoided tech stocks in favour of old economy ones.

People got into housing and emerging markets. Profit alone mattered in evaluating businesses. Globalization was favoured over technology. The general sense was that the dot com crash taught us that the future was fundamentally indeterminate. That all prophets are false prophets. That we shouldn't believe anything people tell us, ever.

The only problem with those lessons is that they're probably all wrong.

People in Silicon Valley learned that you have to do things differently to survive. The post-mania was one big strategic retreat.

We should be open to idea that some or much of the retreat—however necessary it was generally—was overreaction.

To understand businesses and startups in 2012, to learn from the 1990s, you have to do the truly contrarian thing: you have to think for yourself.

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