[lug] Red Hat $ 217/share long or short?

[Pedersen, Michael J]

> I am stupid.  Linux is free.  Yes, multiple distributions.  

I promise you, you are not stupid at all.  This was a question I had
wondered about many times, but I've been figuring out the business models to
a degree, and have figured out the two things that are making RedHat work
right now.

> Why or what in
> the market is bidding Red Hat to $ 217 per share?  Is it 
> going to stay at
> that level?  

1) Programs, by themselves, are absolutely worthless.  By that, I mean they
have no value whatsoever.  None.  As in $0.  Think about that the very next
time you go to buy a program.  You are paying money for something which has
absolutely no value.

They have no value because without users, nothing can be done with them at
all.  You can buy a C compiler for any platform you like. Without having the
knowledge to write programs in C, though, why get it?  Why would you buy a
game if you can't figure out how to play it?  Why buy a word processor if
you can't figure out how to use it?

There was a common thread in those questions: Knowledge.  Any given program
is worth nothing.  The knowledge that makes that program work, though, is
priceless.  So, RedHat (and companies like them) give away their products
for free, but seel their knowledge of how to make it work. That is where
RedHat makes their money.

2) Hype. RedHat is riding the wave of Linux popularity right now.  I hope
that wave never crashes, personally.  However, the other wave which is being
ridden will, eventually, crash: The wave of RedHat's popularity/name
recognition.  As people look more and more into using Linux, they will hear
other names, and explore them, simply for curiousity's sake. As a result,
they will gradually lose some of the initial lust over RedHat, and that will
eventually bring their stock down to a more manageable price.

> Sure it was offered as an ipo at what $ 60?  But is there a 
> rationale to
> short this stock, ie to buy a put?

Unfortunately, I have no idea what these terms means, having never dabbled
in the stock market myself.  I will rephrase my answer though, in terms I do
understand: I would not buy RedHat stock right now.  I would wait until they
come back down off their current highs, and return to a sane price.

> I thought Linux is a free OS.  

Linux is a free OS.  A lot of the time, so is the knowledge to make it run
(provided you ask very nicely :). However, RedHat makes their money by
showing people that they know Linux, and getting people to pay for that
knowledge.