Buy, Lie, and Sell High: How Investors Lost Out on Enron and the Internet Bubble

Defending Enormous Valuations

The bubble years were not marked by either conservative assumptions or by patience. So analysts made extremely optimistic assumptions about market growth, buyers' behavior, and interest rates, and they invented large streams of profits that were discounted to the present to give substantial economic value to firms that had hardly been started. These estimates were a part of the valuation of the dot-coms when they were offered to the public.

Many, probably most, academics who developed and teach the discounted present value methodology are appalled at the perversion of the methodology which occurred in the investment banks. They observe that there is no real or honest use of present value methodology in all this. ...