You know that a particular market is going to face a nasty correction or crash if there is a lot of speculation in that market. Take real estate for example, in normal markets, people buy real estate because they want to build a business, they want to locate their organization in new premises or they wanna buy a home. That’s the main reason the real estate market exists. However, you know you’re dealing with a bubble situation, when people buy properties not with the intent of actually developing that property but to hold it and sell it a higher price later. This flipper mentality is the hallmark of a bubble. When you have more flippers, rather than actual bonafide developers or users, you are in trouble. The same goes with the stock market, if you have a lot of tech companies that are going IPO of being bought out or getting funded, but they do different things, then you know that that market is relatively healthy.
However, if you notice a pattern where the basic same technology or the basic same idea, but modified or slightly changed to fit a particular niche or a particular market segment, then you know that there are signs of trouble. During the first dotcom crash of the early 2000s (as early as 2001 ), you only need to go through a stock of an eventual capital business plan to quickly get the idea that it seems people are whipping each others ideas. It is really just an improvisation on the same theme. Everybody wants to be a portal, everybody wants to be a blog company, everybody wants to be the next Ebay. Ultimately, most of these failed. Is the same going to be happening now? Well, the technology vehicle is changed. Instead of websites, most of these venture capital or business plans are harping on apps (mobile apps) and what you’re getting is, basically, a disturbing pattern of market segmentation. Most of them features a small market version of a big idea that’s already been tried and proven.
So, understandably, a lot of tech bloggers are saying that there is a glut of almost copycat technology startup companies and this can be a massive red flag. We agree completely. Whenever the market is driven more by “me too mentality” instead of actual real innovation, then you know that the market is in trouble because the market is now in danger of rewarding speculation, instead of rewarding real innovation. Real innovation that really produces real results can withstand any downturn. It is the “me too” and derivative companies that are gonna be facing tough times ahead. Sadly, they won’t be facing those tough times alone because they will drag the stock market down and it will crash the economy and all of us will be affected.