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> No one seems to fervently believe tech valuations are cheap, so it’d be somewhat surprising if we were in a bubble. I'm nitpicking a great post here, but I'm

> No one seems to fervently believe tech valuations are cheap, so it’d be somewhat surprising if we were in a bubble. I'm nitpicking a great post here, but I'm not sure this statement is right. During the real-estate bubble and the dot-com bubble, seemingly few people actually thought houses or internet companies were cheap. I think people felt that they were expensive, but they bought them anyway on the assumption that they would sell to the greater fool.

danans 11y ago
I agree that it's a cryptic statement, but I think he meant that bubbles are characterized by investors believing irrationally that an asset class is cheap and buying it. Therefore, investors believing that an asset is not cheap indicates that there is no bubble. Another way of saying it is that if people are generally skeptical about the valuation of an asset class, it can't be in a bubble. That does leave one wondering why said investors would continue to buy the asset, though. With many bubbles, the thing that breaks them isn't investor worry about valuation, but the sudden cascade of failure of mechanisms built on top of the valuations. In the case of the real estate bubble, this occurred because huge numbers of bad loans suddenly stopped being paid when interest rates went up. That broke all the financial instruments built on top of them.
- adevine 11y ago
  The problem with this circular logic is that it is an EXACT symptom of what happened in the housing bubble "Bubbles can only happen when people believe the price will only ever go up. Look, there are a bunch of people saying housing prices are too high. Thus, we can't be in a bubble, so I'm safe buying this shack for the market value of a million dollars."
  - TheM00se 11y ago
    I see what you did there.
bkjelden 11y ago
Aren't the greater fool theory and 'cheap' the same idea, just from different reference points? Both assume I can buy an asset for less than I can sell it for.

danans 11y ago

I agree that it's a cryptic statement, but I think he meant that bubbles are characterized by investors believing irrationally that an asset class is cheap and buying it. Therefore, investors believing that an asset is not cheap indicates that there is no bubble. Another way of saying it is that if people are generally skeptical about the valuation of an asset class, it can't be in a bubble. That does leave one wondering why said investors would continue to buy the asset, though. With many bubbles, the thing that breaks them isn't investor worry about valuation, but the sudden cascade of failure of mechanisms built on top of the valuations. In the case of the real estate bubble, this occurred because huge numbers of bad loans suddenly stopped being paid when interest rates went up. That broke all the financial instruments built on top of them.

adevine 11y ago
The problem with this circular logic is that it is an EXACT symptom of what happened in the housing bubble "Bubbles can only happen when people believe the price will only ever go up. Look, there are a bunch of people saying housing prices are too high. Thus, we can't be in a bubble, so I'm safe buying this shack for the market value of a million dollars."
- TheM00se 11y ago
  I see what you did there.

bkjelden 11y ago

Aren't the greater fool theory and 'cheap' the same idea, just from different reference points? Both assume I can buy an asset for less than I can sell it for.