Stocks and Trading Thread - Channeling your inner Mono

[Tamas]

So you are certain it's a bubble?

You can have a valid argument that it's the early stages of the bubble and it may eventually deflate gently, but I don't see what's the argument for this NOT being a bubble. Valuations had no relation to earnings with the big 7 even before the AI craze. We have been in a bubble since the Covid money-printing, if you ask me.

[Admiral Yi]

You can have a valid argument that it's the early stages of the bubble and it may eventually deflate gently, but I don't see what's the argument for this NOT being a bubble. Valuations had no relation to earnings with the big 7 even before the AI craze. We have been in a bubble since the Covid money-printing, if you ask me.

The argument for it not being a bubble is the difference between a value stock and a growth stock.  For a growth stock there will inevitably be a period of unprofitability so you need to forecast demand in the long term.  A company that looks like shit on present valuation could be the next monster.

I'm curious if any of you bubble callers have put your money where your mouth is.

[crazy canuck]

yep

[Josquius]

You can have a valid argument that it's the early stages of the bubble and it may eventually deflate gently, but I don't see what's the argument for this NOT being a bubble. Valuations had no relation to earnings with the big 7 even before the AI craze. We have been in a bubble since the Covid money-printing, if you ask me.

The argument for it not being a bubble is the difference between a value stock and a growth stock.  For a growth stock there will inevitably be a period of unprofitability so you need to forecast demand in the long term.  A company that looks like shit on present valuation could be the next monster.

I'm curious if any of you bubble callers have put your money where your mouth is.

Put your money where your mouth is how?

I can see arguments for its a bubble don't touch it and it's a bubble, get your share before it pops, depending on your risk tolerance et al.

[Tamas]

Yes, in the sense that I have sold everything bar a tiny amount of index fund, another tiny amount of gold ETF, and my deeply, deeply red weed stock. Sold them way too early too, btw.

[Valmy]

Bubbles tend to do a lot of collateral damage though 

[Jacob]

Bubbles tend to do a lot of collateral damage though 

Yeah.

I'm not particularly riding the bubble or betting on it collapsing soon or anything. My primary concern is not about the impact on my portfolio (such as it is).

What I do worry about is what will happen if (when) the bubble pops - will it damage my industry and leave me without a job? Will the economic repercussions leave me much worse off financially, even if I don't lose my job?

[Tonitrus]

I'm curious if any of you bubble callers have put your money where your mouth is.

Dunno if I would admit to being a "bubble caller", but I am starting to put trailing stops on my most exposed positions.

[Admiral Yi]

Put your money where your mouth is how?

Buy puts, sell off positions, buy inverse ETFs.

[Valmy]

Put your money where your mouth is how?

Buy puts, sell off positions, buy inverse ETFs.

  What the hell are puts, off positions, and inverse ETFs?

[Admiral Yi]

What the hell are puts, off positions, and inverse ETFs?

Puts are options that allow you to sell shares at a given price.  They increase in value as the price falls.

Sell off positions just means sell shares you already own.

Inverse ETFs are investment vehicles that rise in price as the price of the underlying asset (or asset class) falls.

[The Minsky Moment]

So you are certain it's a bubble?

Certain is a very high bar.

Approximately 250 billion was invested in AI last year; it will be around 500 billion this year.
So probably over a trillion has been invested in the current cycle of AI research, with more to come next year.

The question is what would have to happen to generate future returns at a level to validate that amount of investment?

I think at a minimum:

1. AI products would have to reach a very high level of functionality in 3-5 years.  If not "AGI" then the ability to drive exponential improvements in a critical mass of business processes.

AND

2. It would have to be deployable in manner that maintains proprietary control and can't be easily copied or imitated by competitors.

You need to have both for the investment commitments and market cap valuations to make sense.  I think that the combination is a low probability outcome.

[Valmy]

That is dangerous as hell though right? Even if I am sure that eventually the bubble would pop I would be seriously white knuckling it while the bubble continues to inflate.

[Admiral Yi]

Certain is a very high bar.

Approximately 250 billion was invested in AI last year; it will be around 500 billion this year.
So probably over a trillion has been invested in the current cycle of AI research, with more to come next year.

The question is what would have to happen to generate future returns at a level to validate that amount of investment?

I think at a minimum:

1. AI products would have to reach a very high level of functionality in 3-5 years.  If not "AGI" then the ability to drive exponential improvements in a critical mass of business processes.

AND

2. It would have to be deployable in manner that maintains proprietary control and can't be easily copied or imitated by competitors.

You need to have both for the investment commitments and market cap valuations to make sense.  I think that the combination is a low probability outcome.

Thanks.

Which factors made you describe this situation as a bubble and not a simple overvaluation?

[The Minsky Moment]

The magnitude and the circular leverage.