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Comment by pbw | Hacker News Reader

Bubbles are inevitable. Imagine a single company investing precisely the right amount into a new technology, not a penny more. Now imagine every single company and person doing the same thing, perfectly. It’s impossible.

The stock market has boom and bust cycles even with companies using 100 year old technologies! With an embryonic but all-promising technology like AI: it will pop then reinflate many times over. And this is fine.

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The analogy I like best is that the economy functions like a slime mold. When it senses a chemical gradient that indicates food in some direction it grows out in a very wide search pattern, expanding a lot of resources to move that way. When it finds the actual food, most of the growth withers away and you're left with just a path to the food.

Would ants be more applicable, with the Fed setting and changing rates equivalent to the queen putting out different pheromones to increase harvesting of food, expansion, etc with investors being individual ants or the more abstracted flow of capital?

I love this analogy, it also tells you why index investors usually do better than speculators: even if you invest pretty broadly across the space there's a good chance you missed the one path to the food.

Curious about the numbers - do index investors really do better than speculators? At what rate? Is it also true it nascent industries, like the AI one in this example?

see the buffet hedge fund bet. index fund investment beat the hedge funds over an extended period of time.

You might see some speculators do better than the index fund investors, but you also might be ignoring all the ones that did terrible.

And you have to.

Sometimes (most of the time) you bet wrong or just don't win on some new technology you think is important.

But, while fast followers can sometimes get there, you mostly have to place a meaningful bet even if the outcome is hardly pre-ordained.

A bubble is when expectations are severely detached from reality. Simple over-investing is not a bubble.

So do you think AI expectations are currently detached from reality? Can you quantify it?

> Can you quantify it?

It's on the person saying it's a bubble to quantify it.

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