Break out the Bubbly

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LinkedIn’s IPO has been a raging success to this point. Last year’s profit of $15.4 million has managed to turn itself into an $8.9 billion valuation. I guess it’s not a bubble until you are the one holding the shares when they crash.

The only lesson I can take from this (besides the market being irrational, which has long since been accepted) is reinforcement of the scarcity principle. One of the ways in which we are predictably irrational is our reaction when presented with a scarce resource/asset/thing – that is, we desire it over and above what a rational valuation would provide (if such a thing exists). LinkedIn decided to issue only 10% of shares outstanding compared to the 20% issued in the Google IPO, which, along with a number of other forces (the return of the tech bubble comes to mind) contributed to the rapid rise. Check out the WSJ’s take (with subscription) here.

Just wait until Facebook’s IPO.

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