In the last four decades, we have witnessed a series of investment "bubbles" that have all collapsed. It seems that there is no end to the number of people with cash who will be intoxicated by a good story line, even when there is little substance to back it up. All of these stories depend on the capital markets to bolster the price of investments, counting on the "greater fool" theory: There is always someone who will take on a bad investment at just the wrong time, providing a good return to those who are lucky enough to escape before the crash.
In the early 1990s, ENRON was entering the market with a new electricity trading division. A business partner of mine was asked by one of the largest government pension funds to evaluate a proposal to invest $250 million in the start-up. He came to me a few weeks later, saying that he was having trouble evaluating the deal. They could not give a substantive answer to the basic questions: How will each transaction make money? What will be your competitive advantage in this business? What do you expect your market share to be? When he would ask the ENRON guys for a business plan, their answer was, "We did it in natural gas. We can do it in electricity. Trust us."
My friend advised the pension fund not to invest. It did so anyway, apparently because of personal relationships between the fund managers and people at ENRON. As we now know, the fiction behind ENRON's financial plan eventually led to its collapse.
