The cycle of financial bubbles

The Cha-Cha of Progress

Progress is rarely linear.

Bubbles have been written about in economic circles since probably before the great tulip boom of 1637. The dot-com boom of the 90’s followed the classic pattern, which goes like:

  1. The world has changed! I’ve got to get in on this! Everything we knew was wrong because now XYZ has changed the fundamental rules of the game.

    Everything becomes overbought, but at the time, this seems like a rational and sound decision. (see also: Internet stocks in 1999, Bitcoin in Dec 2013)

  2. We were wrong, and boy, were we ever. This is all smoke and mirrors. There’s very little of value in this – sell now before it’s too late.

    The market crashes below it’s intrinsic value. If you missed the first pop, this is when to buy. (see also: Internet stocks in 2001, Bitcoin in July 2015)

  3. Ok, this is indeed useful. The world has changed, but not as much as we thought. Optimism returns, albeit tempered. (see also: Internet now, Bitcoin now)

I believe machine intelligence is beginning a bubble. Don’t get me wrong, machine intelligence / AI will indeed revolutionize our world.

From what I see though, we’re at a point of narrow, focused AI being truly useful at one specific task. We’re still a long way off general intelligence and having deep discussions about meaning.

One of my fundamental philosophies is that things are rarely as good or as bad as most people think. That said, one can definitely profit from the herd.

During times of heady optimism, sell shovels to gold rush miners. When the blood is in the streets, there’s value – good prices – on crown jewels.

Furthermore, we need the heady optimism. It causes the investment which really does create the long term value and growth.

One look at Nvidia ($NVDA) stock of late and you can see the enthusiasm for AI. Will it overshoot and drop? Almost certainly, but nobody knows how far or how fast that run-up will go. The company has a wealth of patents that may truly create substantial shareholder value for decades to come.

Politically, bubbles now occur in the same fashion. We all are surrounded by social media of our own choosing, via direct subscription, or indirectly via click tracking, polarizing human attention into camps.

The dark ages are a reminder that human progress is never linear, and yet, the world, slowly, is indeed getting better – just not in a smooth predictable line.


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Published by

Roger Vaughn

RogerV is the CEO and founder of SwiftCloud, a social business platform for CRM, marketing, accounting and more. He lives in Los Angeles, and wears many hats - including CEO, father, UI/UX dev, coder, staff coffee delivery man, and whatever else it takes to move the needle.


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