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Generally in financial time series, any exponential growth is indicative that something is growing "too fast." It has a better than "pure luck" shot at being ri
by wcgortel 14y ago
Generally in financial time series, any exponential growth is indicative that something is growing "too fast." It has a better than "pure luck" shot at being right eventually when applied to stocks, but is misapplied when used on fiat currency....There is no constancy underlying the asset.
Of course...in order to prove something was a bubble you'd have to define "bubble" which is surprisingly hard.
- alexmat 14y agoIt's only hard to define what a bubble is if you're an armchair economist. Traditionally a bubble can be defined as: "A single asset class that rises in price sharply and continually for years due to some underlying cause. This cause is usually central bank inflation. But a particular asset market, for reasons unknown, becomes the focus of this flow of funds. Other markets do not. This is what makes it a bubble."
- rm999 14y ago>This cause is usually central bank inflation I hope you misplaced your quotes because this is by no means part of the definition, nor is it true. Bad central bank policy can indirectly contribute to bubbles, but inflation and bubbles are two orthogonal concepts. >for reasons unknown Actually in a bubble the reason is almost always known. An economist friend of mine put it well: "there is always an underlying story attached to a bubble that is believable and often true". The tech bubble of 2000 for example had a true story behind it: that tech was going to change the world and mint several world-changing companies.
- wcgortel 14y agoI don't think that definition helps much[1]. For one, arguing that the cause is usually central bank inflation would eliminate a great deal, including the dutch tulip bubble. What about bubbles that took place before central banks existed or were powerful? What about bubbles that had nothing to do with inflation like the tech bubble? Must other markets remain stagnant to satisfy this definition of bubble? What if one market goes up a little, and another goes up a lot? If there is an underlying cause, how can the movement be "for reasons unknown"? Can bubble tendencies occur in only one direction? Is it not possible to have a bubble in negativity towards something? [1] I may be an armchair economist, but my armchair is located at a large academic institution.
- alexmat 14y agoLocated at a large academic institution? I had not realized the weight of your authority. Please forgive my naive pedestrian musings ;) "What about bubbles that took place before central banks existed or were powerful?" Quoting wikipedia: The term "bubble", in reference to financial crises, originated in the 1711–1720 British South Sea Bubble, and originally referred to the companies themselves, and their inflated stock, rather than to the crisis itself. This was one of the earliest modern financial crises; other episodes were referred to as "manias", as in the Dutch tulip mania. https://en.wikipedia.org/wiki/Economic_bubble https://en.wikipedia.org/wiki/Economic_bubble I am a bit rushed and cannot respond to all your questions immediately, but I will say that definitions are tricky things, and I admit there are many nuances we can spend years exploring.
- JumpCrisscross 14y agoA bubble is chronic over-investment, characterized by a positive price feedback loop, i.e. people buying for futureprice appreciation on the basis of past price appreciation.
- waterlesscloud 14y agohttp://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
- pseut 14y agoNote that he's not talking about the company's value (in dollars).
- waterlesscloud 14y agoHe's structured his entire business around the idea that successful startups have values (in dollars) that follow that trend.
- pseut 14y agoPlease quote the section of the essay that says startups should aim to have exponential growth in their value, since I can't seem to find it (I see a statement like that for revenue, which is different).