In Extraordinary Popular Delusions and the Madness of Crowds, the Victorian writer Charles Mackay describes a company formed during the South Sea Bubble in 1720 which declared in its prospectus that it was “for carrying on an undertaking of great advantage, but nobody to know what it is”. After investors hurried to buy shares, the founder “set off the same evening for the Continent” and was never heard of again.
A get-rich-quick atmosphere is also enveloping Silicon Valley at the moment, with Wall Street investors competing to buy privately-traded shares in social media companies such as Facebook, Twitter and their imitators. It has a mysterious newcomer in Color, a photo-sharing application for mobile devices that has puzzled many users but which easily raised $41m – several times the usual amount – in its first funding round.
As Color launched last week, the veteran investor Warren Buffett spoke out about social networks, declaring: “Most of them will be over-priced ... Some will be huge winners, which will make up for the rest.” Mr Buffett has long shunned technology companies as having uncertain prospects compared with the insurance and food and drink companies he prefers, and he is right about the latest craze.