What to do if a bubble is starting
blog.samaltman.com
blog.samaltman.com
The excess was mind-boggling. In contrast, today it just seems like lots of investors have found a good way to pump money into a reasonable risk pool and extract value. Seems fairly sustainable.
In the 90s, companies were doing IPOs and their shares were skyrocketing from public investment. For the most part right now it's institutional investors who are a lot more qualified than John Q. Public.
"Bubbles arise when there is (1) widespread, intense belief that’s (2) not true. But people don’t really believe in anything in our society anymore. You can’t have a bubble absent widespread, intense belief. The incredible narrative about a tech bubble comes from people who are looking for a bubble. That’s more overreaction to the pain of the ‘90s than it is good analysis."
In other words, if the majority of people believe there is a bubble, there is not, by definition, a bubble.
Valuations for seed-rounds are frothy because there are a lot of investors competing and looking for astronomical returns, but Series A is still hard to come by. Just a couple days ago there was an article on HN about "avoiding the Series A crunch," and today we have a "what to do in the bubble" article.
If anything is widespread, it's good old fashioned paranoia.
Well, you will see this as paranoia then: There were lots of people arguing like you that there were no bubble -- just until it burst.
For instance, this "everyone learn to code to earn money" thing imho indicates that it is highly likely that the programming profession will burst in a short while. Again. (The reason there is a lack of software people now is at least partly because everyone stopped studying computer science after the IT death.)
Edit: jonnathanson (and others) answers you better than me https://news.ycombinator.com/item?id=6440516
Should I believe that?
(And is this another way of say "This time is different"?)
Is it actually possible for people not to believe anything, in our society or any society?
> In other words, if the majority of people believe there is a bubble, there is not, by definition, a bubble.
Does this go beyond first-order consequences? Is it also true that the more people utilize the rationale to convince themselves that talk of/paranoia regarding a bubble is a sign of no bubble, the more likely there can be a bubble?
Also, there seems to be the assumption that when people realize there's a bubble, they'll immediately engage in attenuating behavior. I think there's evidence to the contrary -- that as long as people can see a way to continue to profit from it (say, a critical mass of people believing everyone else is the greater fool), a bubble can continue while being widely acknowledged.
"We are nihilists, Lebowski! We believe in nothing!"
Sorry, couldn't resist. :)
With all due respect to Peter Thiel, who is much smarter and more successful than I am, I'm really baffled by the statement that "people in our society don't really believe in anything anymore." And I am especially baffled by the implication that this putative, ubiquitous nihilo-cynicism -- even if we accept it to be true, which I don't -- necessarily precludes the formation of bubbles. Did people not believe in anything back in the mid-2000s housing bubble? It seems as if they believed in housing, for one thing. The belief was "widespread and intense" enough to cause a serious freakin' problem.
I'm going to give a guy like Peter Thiel the benefit of the doubt and assume that I'm missing a lot for lack of context. But that quote, at least out of its original context and so presented, is really strange.
:)
> With all due respect to Peter Thiel, who is much smarter and more successful than I am
Remember, these two things sometimes go together.
Another guy who's more successful than many of us said “Success is a lousy teacher. It seduces smart people into thinking they can't lose.”
> I'm going to give a guy like Peter Thiel the benefit of the doubt and assume that I'm missing a lot for lack of context
I'm a little less generous; my guess is that what Thiel says is very smart indeed in the context of boosting certain business interests and/or political philosophies.
Well yes, there's certainly that as well. I'd be hard pressed to say that Peter Thiel has no vested interests in the status quo.
In the 90s it wasn't just that HTML was new, anyone that was "good with computers" was able to land jobs that paid stupid amounts of money for the skill set. There's good money and a demand for developers now, but companies are still looking for good developers, not just bodies with the right buzzwords on a resume.
And also mentioned in the parent comment: there's nowhere near the zeal from the general public. I don't know anyone in the non-tech world that thought groupon or zynga was a good deal, and almost everyone is curious how exactly fb plans to make money in the long run. Compare this to the dotcom bubble or the real-estae bubble and it is very different (I remember many people telling me in 2007 that I was foolish not to buy a house).
It's not even IPOs or stock price. It's more VC funding and big exits.
As for John Q. Public, that's about to get WAY more interesting, since general solicitation is now a thing.
It may not be as entertaining as the .com bubble, but there's potential here.
I mean, just look at http://www.wefunder.com/terrafugia. If that's too over the top, even http://www.wefunder.com/casetext is mind-boggling. 2% interest, an $8 million valuation cap and no discount on a $1.3 million convertible note for a startup that says it can't start acquiring paid customers until its "enterprise software is ready to the security standards that firms demand -- likely in six months"?
$30 million in pre-orders
2 production-ready prototypes built (i.e., actual, flyable planes that readily turn into road-worthy cars and back again)
I wouldn't call that over the top. I'd call that awesome.
Casetext seems eminently reasonable. They have founders with solid domain knowledge, are solving a very painful problem for an industry with deep-pocketed players, seem to have an easy-to-use product, and have demonstrated measurable traction. I'm tempted to invest once I do a bit more due diligence on both WeFunder and CaseText.
2. Historically, it has not been uncommon to see convertible note interest rates as high as 10%. Not surprisingly, rates have come down in recent years (I believe the median rate was 5.5% a couple of years ago), but 2% is really low.
Based on my knowledge of the legal market, I don't necessarily agree that Casetext presents a compelling investment, but even if you do, the reality is that successful angel investments are based on two things: a) investing in good startups and b) investing at the right price and on the right terms.
Finding the former without being able to do the latter is sort of like picking next week's winning lottery numbers this week. You'll have a great story to tell your friends but no money to show for your troubles.
When you're investing at $100M rather than $8M the equation changes substantially. That's where we were during the last dot-com boom; we're pretty far from there, unless you're a Facebook investor.
Sounds great! There's only one problem: your $1,000 investment in Next Big Thing Inc. is not going to be worth $1 million. The data is very clear: most individual angel investments lose money, and overall, the type of returns angel investors see on their overall portfolios all but rules out the idea that there are 1000 baggers out there.[1]
In short, it sounds like you're looking to hit a Major League home run with a tee ball bat. If you're searching for massive returns, you need to look at markets in which you can make much more highly leveraged bets. Many of these, like CDS, are inaccessible unless you have tens of millions of dollars to play with, and that's at an absolute minimum.
By the way, regarding public markets: if you had invested in the right equities over the past five years, you could have produced better returns than most angel investors without taking on anywhere near the risk. Obviously, picking the right equities to invest in is easier in hindsight, but so is picking the right early-stage startups to invest in.
[1] http://techcrunch.com/2012/10/13/angel-investors-make-2-5x-r...
Seems easy now but we've go tools, tutorials and people to learn from now.
Really? I recall my personal roadkill website I had back in 1996 as a 6th grader. Picked up an HTML manual at the library when they still had card catalogs. Nothing too hard about it at all and Dreamweaver and Photoshop made it a snap if you were ignorant of markup.
It was a bubble. Too bad I was learning about Earth Science while people were making frivolous dollars.
Most of the websites I remember from that period had a lot of cut and paste graphics (Photoshop was expensive, has a learning curve, and harder to use than today) so I'm sure custom graphics were expensive and people charged a high rate (with lower productivity). I can't remember any popular WYSIWYG authoring software prior to DreamWeaver/FrontPage. I would guess most were hand-written--which, as you know isn't hard, but the tools were a lot less refined and harder to find out about back then.
[1] http://en.wikipedia.org/wiki/Dreamweaver#History [2] http://en.wikipedia.org/wiki/Adobe_Photoshop_version_history...
I still remember owning Dreamweaver 1.0 and HomeSite simultaneously back in late '97.
It's a completely different field right now. If it was 1999 almost all of the series A companies we see right now would have already IPO'd.
Ten years later: >> "Guys were being paid $100/hour to get CRUD working through a web framework."
People weren't being paid to write HTML. They were being paid to publish information on the Internet for the first time ever. Like, before W3 schools and NodeJS. Like, back when you got your morning news from the paperboy.
If typesetters were paid a dime back in the 1700s, anyone who could design a webpage in the 90s was certainly worth their weight in gold.
And with time, one day your job will also be super unflattering to talk about.
The pay was out of whack because public money was flowing into tech stocks and companies were doing IPOs with little to no due diligence. You had do-nothing companies with ten to fifty times the capital that a typical well-funded company would have today. Large companies were buying things left and right out of sheer terror and misunderstanding of what the web meant to commerce.
So no. We're not in a bubble.
Property prices and rents in SF have spiked 30-40%, in some cases doubled, in less than a year. Same pattern as with the NASDAQ in 1999-2000. This is predictably driving the cost of doing business up, especially for companies that need to pony up for an actual office, payroll, etc.
Of course the details are different from 1999, but it feels a lot like that time. As Mark Twain said "History doesn't repeat itself, but it does rhyme."
To be fair, this is a lot more feasible now than it was back then. I'm not sure what's making it so. Higher volume of willing-and-able-to-internet customers? Better routing? But I cite as evidence the number of established players who are dipping their toes into the same-day-service market.
We've seen this with eBay Now - the economics are sustained by limiting service to only zip codes with sufficient density.
I feel like we have had varying levels of bubble phobia for at least a year now. It's starting to feel like it would be more surprising if there wasn't a bubble then if there was.
And isn't the whole point of a bubble that people are bidding something up unaware that it's value is fictitious? Which seems difficult if everyones constantly talking about a bubble, no?
There were a few cautionary stories back then, but most of the tech press and most of the mainstream press was full of hype. There was a cottage industry back then creating stories explaining how the Internet was going to let the economy grow and grow and make us all rich. I still see those stories, but it seems like many more people want to be The Guy Who Spotted the Bubble rather than the Pied Piper
Yes, and the prevailing counterargument at the time was, "But this time it's different! The fundamentals of everything have changed, because...internet!"
If you look at historical bubbles, and particularly at historical technology bubbles -- the South Sea Bubble, the Mississippi Bubble, the 1920s Bubble, the bubbles of the mid to late 1800s -- "This time it's different!" has been a pretty consistent pattern of denial. Typically there's a rational basis for the exuberance at first, but this onto this basis is piled a whole lot of speculative investment and fervor, wildly inflating valuations beyond the boundaries of plausible expected return.
Some of that mass irrationality has to do with easy access to capital, and some of it has to do with easy openings to capital markets. The latter is usually required to really kick a bubble into high gear. [So the operative question in this case is: what effect will the opening of private startups to public investment have?]
Are we currently in a bubble? Really, really hard to say. I don't feel qualified to make that judgment. But to answer your question, yes, most bubbles have at least a few naysayers who are bearish on the situation. But their voices tend to get drowned out, especially by those with interests in keeping the bubble going.
Quoted on page 70 of J.K. Gailbraith's The Great Crash 1929 which I very strongly recommend to anyone.
Yes. Most surreal immediately prior to the crash. NASDAQ peaked in March of 2000, many start-ups continued, though increasingly desperate for funding (which generally never came) through early 2001, by which time many finally gave up the ghost.
I remember distinctly looking around especially at the younger workers (often just out of college, early 20s, now in their mid to late 30s) wondering what they'd do when the music stopped. For most it was back to mom & dad.
B2C meant "back to Cleveland".
> The greatest of modern economists, the late Joseph A. Schumpeter, labored mightily for twenty-five years to find the “cycle.” But at best, his “business cycle” is the result of so many different cyclical movements that it can only be analyzed in retrospect. And a business-cycle analysis that only tells where the cycle has been but not where it will go, is of little use in managing a business.
Basically, let's all stop laboring over whether there is a bubble or not, no one can predict it.
Nonsense.
It's quite clear that the extraordinary actions of the major central banks over the past several years has inflated numerous bubbles. The question is not whether they exist, but how big they can get, how long they can last and how they will pop or deflate.
In other words, precisely timing a bubble's demise and accurately estimating the magnitude of a correction so as to benefit from the correction may be damn near impossible for most of us (markets can remain irrational for longer than men can remain solvent, and all that) but it's quite possible to recognize growing risk that a market isn't pricing in, and adjust your behavior accordingly so that you're less exposed to the risk.
> may be damn near impossible for most of us
Huh?
> but it's quite possible to recognize growing risk that a market isn't pricing in
I'm genuinely curious if you know anyone who has the ability to do this? If you know someone, I'm putting all of my stock in their company.
As I said, precisely timing a bubble's demise and accurately estimating the magnitude of a correction so as to benefit from the correction may be damn near impossible for most of us. And even if you do time the market well and have a good sense of the size of a correction, you probably don't have access to the investment instruments that will allow you to reap the greatest rewards.
> I'm genuinely curious if you know anyone who has the ability to do this? If you know someone, I'm putting all of my stock in their company.
What do you mean?
Right now in the Bay Area, you have lots of folks in tech who refuse to recognize that today's hot market is in large part fueled by monetary policy. They assume that they have job security and will always be able to jump to another six-figure job with a phone call or two. As a result, many fail to save. And many spend a very large portion of what they make in unproductive ways because they believe their risk of loss of income is close to zero even though it is actually much, much higher. This[1] is a good example of the mentality that is particularly prevalent amongst younger engineers and entrepreneurs here.
You don't have to be a hedge fund manager to see the froth in the market today, and even if the fun could potentially carry on for years more, any individual in tech in the Bay Area can reduce his or her risk exposure by a) avoiding certain types of employers (even if they pay handsomely today) and/or b) taking the opportunity to save while compensation levels are so high.
[1] http://www.futurealoof.com/posts/the-san-francisco-safety-ne...
You stated:
> it's quite possible to recognize growing risk that a market isn't pricing in
How is this possible? What data, metrics, tools, do you have that shows an increase in risk other than a basic "intuition"? That's my point - if such a tool did exist to the common person (as you suggest, the techie in SV who isn't saving), financial institutions would be all over that. They aren't (but they claim to be)
The blog post you reference, is just one data point. Just because one person feels that way, doesn't mean the whole culture is that way.
> They assume that they have job security and will always be able to jump to another six-figure job with a phone call or two. As a result, many fail to save.
I'm not disagreeing with this sentiment, but we'd both be drawing fairly baseless conclusions. Counter-point - Are there not loads of people who survived the 90's .com boom and making a killing today in SV? (i.e. PG is one example) So why would savings matter then?
The challenge is not finding data; the challenge is identifying which data is truly important and allowing yourself to make objective decisions based on the data.
I'll give you a simple example: I am currently short JC Penney through options. Before I took my positions, one of the things I noted was a divergence between what the equities market was saying about the company's prospects and what the credit market was saying about the company's prospects. The credit market was notably more pessimistic about the company's position at the time (obviously measured by the risk of JC Penney defaulting on its debt), and now you see the equities market catching up.
From what I can tell, a lot of folks in Silicon Valley don't even want to look at data. Startups with little to no revenue raising million-plus convertible notes with $5-15 million caps and sub-5% interest rates? And some of them have already raised capital? That's a data point that makes junk bonds yielding 7% look good by comparison.
Is anyone else noticing this phenomenon? Apparently I'm not invited to the right parties...
To reuse a great Mel Brooks line, the girls have an opening they're looking for you to fill, but it's not the interesting kind: at best a Sr Software Engineer at some massive company writing Java on a team that "is just like a small startup in a big company".
That's my favorite line. It lets me know to run the other way. Often, when people use that line on me, I ask about the equity I'll get as part of the deal. Usually, it turns out that they want founder-level enthusiasm without the pay.
The pay was great, and so were the hours & work environment.
Mind you, when I got the job, I thought I caught a unicorn.
I know PG's comment was posted 950 days ago but I'd be interested to know how he feels about bonds now.
When people are starting to think a bubble might pop, likely it already has.
This is my third bubble I find they have more opportunity than downside with one major exception: VC's in their blind hype turn fundraising into a wicked market where silly unsustainable ideas are highly valued and solid business opportunities are shoved to the side as boring.
When I think "bubble", I think of two - the old dotcom bubble, and the housing bubble. The housing bubble was driven by those nasty CDOs, which produced abnormal rates of return on AA/AAA securities, while leaving their value vulnerable to problems with the sub-prime market. Money pours into the housing market thanks to excessive returns, which both drives up housing prices and drives demand for more mortgages, which reduces proper risk management... a vicious cycle, til the subprimes start defaulting and the prices drop and then the bubble pops.
The old dotcom bubble was driven by IPO money from unsophisticated investors, so there was a massive push to get companies public as soon as possible, well before they had solid business models. This drew institutional money into the venture capital market, and again, things got all out of wack, and capital supply was driving startup demand, and weak businesses were getting funding they didn't deserve.
So the real marker for a bubble now, imho, isn't whether prices for early stage startups are going up, but rather whether a lot of bad startups are getting funded. Is that really happening? An increase in price suggests otherwise. Supply and demand, people. Sure, demand may be up, but either that increases price, or the market responds by increasing supply. And since the number of quality startups is basically fixed, supply increase means introducing bad startups.
And this doesn't even bring in other factors, like pg's marvelous observations about how startups need less Series A money these days generally, and the rise of super-angels, angel syndicates, and online tools like AngelList and Gust.
tl;dr Demand != bubble
Curious how the advent of companies like WeFund et al. will change this. As much as people like the "feel-good" aspect of the common man being able to invest in start-ups, I'm interested in seeing how this turns out. It's been said a thousand times, but for every Facebook / Google startup there are many, many more that crash & burn that simply don't make headlines.
I'm very happy to have the chance to invest in startups, I'm just not sure it's a good thing overall.
Consider what this does to the cycle... startups good enough to get real angel money will probably be wise enough to not take on a bunch of high-risk unqualified capital, and so they won't be on WeFund at all. This leaves WeFund to the ones that are more idea than startup, not good enough to get in the real capital game. So the likelihood of hits is very low.
So, how much money can be poured into the system this way? Not enough to distort the entire market the way the dotcom boom did, I think. It would take a million thousand-dollar investors to just get a billion, which isn't enough to really kill anything - and $100M or less even less important in the big scheme of things.
Demand is a linear function of Leverage, and today comes by the Fed. CDO and mortage backed securities; Public Investors; The Fed. Its not a difference in kind that matters. Bubbles are caused by excess liquidity.
Another possibility we'll see is startups getting overfunded and drowning in their own capital (another thing that happened in the old dotcom era). But the true quality startups shouldn't allow themselves to get overfunded anyway.
I also think we should see a drive to IPO to drag unsophisticated money in, like back in the day. We're not, I don't think. Exits these days seem to be primarily M&A driven, and how vulnerable is that to liquidity surplus?
This doesn't seem to be happening at later stages (B rounds) or public companies.
What this means is that returns for initial investors is going to be lower - but it still might be sustainable. Companies usually will grow past +$15M when they do well.
During dot.com bubble, the short term interest rate was 5%+ in 1998 and 1999, and that didn't stop that bubble. The Fed only belatedly raised rates to 6% in 2000 when the bubble went parabolic.
The Fed is always slow to raise rates, and rates are at 0%. It could be years before we are at 2% rates with FOMC incrementing 0.25% every quarter or so, and 2% rates is still very stimulative. Right now, the Fed isn't even talking about raising interest rates. They have only been talking about reducing the $85 BLN/month $$ printing, but even that is on hold as of the last FOMC meeting where they voted 9 to 1 to not taper.
The Fed still has the pedal to the metal, and have publicly stated they do not see a bubble anywhere (just like they said there was no housing bubble back in 2006-2007). Don't get shaken out of the market just because the Fed talks about tapering its $$ printing from $85BLN/month to $75BLN/month. The current environment is still very stimulative for stocks.
If there is a bubble, it won't pop because of the Fed. It will pop after the momentum is exhausted and it collapses from its own weight.
So it should prove interesting what happens then. That said, my wife and I are in the middle of (trying) buying a house here. So far, there is intense competition amongst buyers. One home we put an offer on had 19 offers total. We offered 21.5% over asking and at least 3 offers came in ahead of us.
I think it's healthy for people to be paranoid of another bubble forming ... it helps potentially keep it at bay. At least, that's what I tell myself :P
Whether that is a sign of the software industry maturing, or if it was just plain good luck, remains to be seen.
I think the rise in startup valuations, even at the early stage, while a bit frothy (and definitely more so in the bay area) is driven by some structural changes (i.e., the leverage allowed by the new tools which make development cheaper/faster) and access to much bigger markets (mobile, anyone?).
"Hot girls" at the bar looking for a job are probably doing so because tech is one of the few non-sucky sectors for young people.
Founders investing their capital in other startups doesn't strike me as so weird, given how Angel List and Funders Club, etc. are making it ridiculously easy to put a bit of money to work. Founders with disposable income used to invest in public equities and bonds if they wanted to. Now, startups.
There are trillions of dollars still sitting on the sidelines chasing growth. Not even a tiny fraction of that has been deployed to VC (mostly because the returns, in aggregate, are still pretty bad). Should that happen, I might begin to be a little apprehensive.
Legislation that creates new investments opportunities, coupled with cheap capital is a dangerous combination. I would not be surprised if the new JOBS Act [2] provides the spark and the Fed's loose monetary policy provides the fuel that creates a startup bubble (quickly).
Companies like Angel List [3] and Wefunder [4] have been quick to recognize this and take advantage of the new demand pockets the JOBS Act creates. Just check out their home pages.
As Sam mentions, there may be some time before it bursts, but it's very tough to figure out when it will be...and early stage company shares are not liquid.
[1] http://en.wikipedia.org/wiki/Community_Reinvestment_Act [2] http://en.wikipedia.org/wiki/JOBS_Act [3] https://angel.co/ [4] https://wefunder.com/
On Wall St, we wound up with a multiple trillion dollar problem. That's tr-, not b-, as in 1,000X bigger.
The CRA thing is ideological bullshit. I seriously do not understand how anyone who passed 3rd grade arithmetic could buy into it.
I didn't mean to say that the CRA was the only cause for the housing bubble. There were a lot of factors that lead to the housing bubble.
My point was that the CRA was the beginning of a decade long non-partisan policy shift that signaled to regulators, Wall Street, etc. that owning a home was an unqualified good thing and looser standards for lending against homes should be encouraged.
Once the government and regulators signal to Wall Street other investors that they are encouraging the deployment of capital to a new, loosely regulated asset class it creates a dangerous environment.
Very worried to read that this is still happening:
"Companies raising money at $15MM+ plus valuations with no traction and no real vision..."
The actual founder-founders, the inventors of the ideas however, are totally aware of that situation and let the startup people with the big egos do the CEO jobs while pulling the strings in the background.
It's not a bubble in terms of the actual startups, because it's all based on users that actually use the apps a lot. The more usage an app has, the harder it is to kill.
After the whole solomo, photo sharing hype, investors have become very cautious, so I don't actually believe money is cheap now.
However, it's an ego bubble right now, startups get press before being ready, pursue vanity metrics that actually will kill the company, their own startups are growing over their heads.
So it's maybe a people/ego bubble right now, which could turn into a full bubble, but time will show.
So my advice is to ride the bubble because the inflated salaries and other compensation are good for you, but be mindful of what might happen if the bubble pops. If it's bad enough, you might be left unemployed with very few job prospects for a period of time. Don't inflate your lifestyle, and use the opportunity to build up a large savings account. If the bubble pops, that'll tide you over for a long period of unemployment until the job market recovers or give you breathing room where you can pivot your career.
If all this talk about bubbles turns out to be just fear-mongering and it doesn't pop in the end, it's still money in your pocket you can use to bootstrap your own company or eventually retire on.
The worst things to do are to spend all the money you have, or invest it in bubbled assets that might evaporate.
Around mid-atlantic salaries never recovered from the economic downturn, and they show no sign of ever doing so.
I saw several engineers in the dot-com crush, graduate, work for a year at some BigCorp, then go to work for a startup as "Chief Architect" or some other vaulted title, lose their job when the crash hit, and then found themselves unemployable at some really vaulted title and salary because they really only had 3 - 4 years experience and it wasn't all that broad. That was sad to watch. Don't be that engineer if this is another bubble.
In my experience, YMMV, etc, etc. Just something I noticed in my looking for work 1H2013.
There's one hitch here: if the entire startup scene were to bust, there'd be a massive excess of developers vying for the traditional stable jobs at traditional profitable companies. This would significantly raise the bar for getting hired while potentially lowering salaries.
- The bubble "burst" over about 9 months in the greater Boston area, give or take.
- For about 3 months, it was nearly impossible to get hired no matter how good you were. Everyone was laying off solid senior engineers with tons of in-house knowledge, so why would they hire?
- The area immediately around Boston recovered slowly, because there were just too many unemployed engineers.
- My ~23yo friend who held $250,000 of stock watched it drop to almost nothing during his post-IPO handcuff period.
- Any company which sold to startups, or which sold to companies which sold to startups, etc., pretty much died horribly. Huge, successful, awesome companies just evaporated.
I was young and single, so I simply skipped out of the "blast zone" around Boston, waited a few months, and started applying to cool, small shops in second or third-tier cities that didn't have a huge number of unemployed programmers. Got a good job, had fun, got a bunch of raises, etc.
The financial advice in the other comments is good. Make sure you have a year's cushion if you can. If you're good, you love programming, and you can relocate, you can ride out a lot. Plenty of interesting small companies are unable to hire in this market, and most will be around post-crash. Take a salary cut, get an interesting job, and help somebody make some money.
That is a pretty bad strategy to hire from founder's perspective. Will reasonably smart engineers like these strategies?
On a related note, a friend of mine was telling me that he saw someone (on OkCupid) mentioning about contacting her only if you are engineer since her startup is hiring engineers. Ha!
On the other hand, most of the start ups are expected to fail. The ones that succeed generally have a big enough pay off that all the failed ones can be shrugged off.
I think we are in transition where we could go either way. Investors know this and that is why money actually has been tighter.
But Tesla and SpaceX are just fucking awesome.
The overall amount of money we're talking about here is MUCH smaller than that. A couple of orders of magnitude at least. As such the effects of any bubble popping aren't going to have widespread consequences here.
A major pullback in funding will definitely affect engineers. Jobs will simply be a bit harder to find, but there are so many technology companies operating outside of the startup funding domain that I don't think it will be terribly impactful.
The worst case is we go back to like 2005, which isn't really too bad at all.
Your strategy is okay. For those set of assumptions I suggest you remove the second step, which might significantly reduce your being rich. So, 1) Keep plenty of liquidty. Buy nothing pre- or post-crash.
This has a very high probability of keeping you rich.
Now on to us mere mortals. In bubble times did you know you can actually start a company with like a few hundred dollars, start delivering product and getting users, and get investment to accelerate the process?
That way, you can build a company with cheap capital even if you're not already "plenty liquid", as you might put it.
Of course, we can all be clairvoyant if we sweep our losses (FB is up 27% versus IPO opening price) under the rug. Shorting as a strategy works wonders if you ignore when it doesn't.
My investment strategy is low cost index funds. I'm not about to start playing in that casino.
Create some fake startups which take in the cheap capital. Funnel it to a safe haven by making the fake startups buy overpriced services from safe-haven-company. Once the bubble busts the should be a lot of cash in the safe haven to buy now undervalued assets and maybe even work hire the now unemployed engineers.
This year average salary is up at least 15k from last year.
This indicates to me there might be a little too much loose money floating around.
Another great poster stopped reading HN.
"hot girls roaming bars trying to chat with any guy that looks like he might be an engineer and looking for a job"
suddenly understanding the attraction of living in SF/SV
Don't get your hopes up. I've had drunken engineers come up to me in a bar (Bourbon & Branch, no less) -- slurring words -- times I was sure they wanted to hit on my girlfriend or start a fight for some reason, where after a few seconds of direct eye contact, they pull out their phone and say "heeey maan, want to try my app?"