One of the oldest Wall Street jokes was is from a pre-WWII book by Fred Schwed:
Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said,
“Look, those are the bankers’ and brokers’ yachts.”
“Where are the customers’ yachts?” asked the naïve visitor.
I haven’t looked into this question, but are we absolutely sure that online advertising via Facebook and Google really works as well as markets assume?
My rule of thumb is that the stock market knows a lot more than I do about the valuation of stocks, so I’m not all that contrarian. My basic shtick is to not be oblivious to the obvious. If the stock market says Facebook’s capitalization $414 billion, well, the amount of hard thinking that has gone into that number is a lot more than I could reproduce, so I take it for what it’s worth: the single best skin-in-the-game estimate of Facebook’s market cap.
On the other hand, even if proof that online advertising is currently as effective as the huge market caps of big online firms seem to assume, the stock market could believe that even if this hasn’t gone through the formality of taking place, it’s only a matter of time. There’s just too much money at stake to fail. A famous knockoff of Allen Ginsberg’s “Howl” by a Facebook employee laments: “The best minds of my generation are thinking about how to make people click ads.” So it might be rational to assume it’s bound to happen.