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Comment by jstummbillig | Hacker News Reader

We all know of bubbles. Let's assume the idea of a bubble has not escaped investors attention.

Here is where I get confused:

- It does not seem very likely that all the people whose entire job it is to make these decisions are completely incompetent. Is it for some reason good to invest badly? How does this work in reality? Does it not matter if an investment goes to zero? Is every investment a good investment, because nvidia sells chips, is that how the math works here?

- Absolutely everyone and their mum talks bubble and supposedly can see it clearly (in contrast to for example the 2008 housing bubble) but nobody in power has the ability to act rationally. What the idea here?

- If it can be explained, that every investment is good now, and the answer to the previous question is something like "greed", why stop at a measly billion? Why not just, say, 10 billion? The money is there obviously. More "bad" investment = better?

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Like in 1929 or 1999 everyone knows it is a bubble, but always thinks they're the rational one who can ride the rollercoaster up and time the bubble, then sell before it pops.

It is the same psychology behind meme coins. Everyone knows they are worthless, they gain value because everyone is trying to make everyone else the greater fool holding the bag.

2008 was less a bubble of irrational exhuberance and more a bubble of overvaluation enabled by fraud of bundling bad mortgages into A rated investment products

It's like the boss of Citicorp said back in 2008, "as long as the music is playing, you've got to get up and dance". If you withdraw from the market entirely then you'll definitely lose. So they try to time the market and hope to get out when the music stops. Didn't exactly work out well for Citicorp.

Hm. So what's the idea. All of FAANG, all investors, they all do it like that citibank person said, who failed catastrophically, because...? At best this tale reads to me: Even if you are fully aware, and super big, you are high risk of losing it all, and most people will lose it all. Is everyone who was involved in building these mega corps by investing smartly over fairly long periods of time now delusional, at the same time? We can see it, but they can't? Is that what's required to explain it?

I am not much of a trader, but I assume there are always insane opportunities to invest a few billion dollars in high risk/high gain stuff, no? Why wait for AI? You can try to time any market. What explains the enormous amount of money into this one?

Firstly we don't factually know if it's a bubble. Maybe there's some beyond LLM breakthrough and everything turns out right? Even if it's a bubble, we've no idea how long it has to run. Could all burst tomorrow, could be in a few years. In some scenarios you're going to miss a lot of growth by exiting the market now.

Well, but in that case all we mean by "It's a bubble" is "I am pessimistic".

That's fine... I guess. Somewhat boring. I have no clue why we would feel the need to dress it up and make it sound like insight into the market.

VC investments are inherently high-risk, high reward. That is, most of the investments will go to zero, but hopefully one or two really good ones make up for it. In order to make that work, you have to invest in many different startups, which is what Nvidia seems to do.

Nvidia has the additional advantage that some of their invested money will make it back to them in the form of dollars spent on compute, which makes their investments cheaper for them, relatively speaking.

> If it can be explained, that every investment is good now, and the answer to the previous question is something like "greed", why stop at a measly billion? Why not just, say, 10 billion?

If the startup isn't looking to raise 10 billion, why give it 10 billion? Instead, give 10 startups one billion each, to spread out the risk.

I got into following the markets around the time of the housing bubble and everything I read at the time said their was a housing bubble.

I think the properties of a true bubble mean that it is not irrational to invest in the bubble and that is a part of what causes the bubble. If your neighbor makes $100k flipping a house and has no special skills above yourself then it is not irrational to also try to flip a house.

This bubble especially has that property. Like Zuckerberg has said there is a big risk of not taking enough risk on something like AGI or super intelligence. That is a perfectly rational position but that is exactly the self reinforcing nature of a speculative bubble.

I also don't think in general a bubble is fundamentally hard to spot. It is hard to profit though from the bubble bursting because of the self reinforcing process at play that you have to bet against.

If I know it's a bubble, what's the risk in waiting?

As long as it could still be far worse to not take a risk, then it's not actually a bubble, right? It's just an early investment. If I have to do something now, to not fall off the track, then the space might not be super clear right now but clearly still on track (because otherwise the correct strategy is waiting for the bubble to burst and maybe then invest).

Or maybe we are just really unclear about what "bubble" actually implies. To me it's the point at which a lot of people have invested a lot of money into something, that will be worth less, than that total amount of money. Is that wrong?

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