Sigh. I click on comments and the top comment is two line DH2 responding to the title of the post. Not HN at its best.
Actually I did say that valuations are high, and they'll probably fall in the future. But there is a difference between the ordinary rise and fall of prices and a bubble.
The standard definition is "trade in high volumes at prices that are considerably at variance from intrinsic values".
"The valuations are high, and they'll probably fall in the future" implies (by the way I construe it) "considerably at variance from intrinsic values". It would be hard to argue that there is not high-volume trade in the tech industry.
Individual prices rising and falling due to changes in intrinsic value, for example, due to information about new competing technologies that could not have been anticipated before, or unanticipated information about things much of the tech industry is dependent on, like energy prices, can change the intrinsic valuations.
But prices rising above the intrinsic value because of high investor confidence and investment dollars from one company cycling around the industry and buoying up the existing players is a bubble. It might not be as big a bubble as the last bubble, but it is still a bubble.
You choose one of several definitions you find on the web and call it the "standard definition," as if that made it a sort of axiom. Then you interpret its vague "considerably" as synonymous with "at all." But then you're one step away from your own reductio ad absurdum, because you can now prove that any random (upward) price fluctuation is a bubble, and that is just not how people use the word. Stock prices rise and fall with investor confidence, but not every rise is a bubble. The term "bubble" is reserved for really extreme cases.
Incidentally, I've found that when the conversation in a forum descends to arguments about the meanings of the words being used, it never rises back up to talking about ideas. So if you don't mind, I'm done with this one.
> The term "bubble" is reserved for really extreme cases.
Maybe so, but it doesn't tend to get tossed around until cases start to get extreme. There are a lot of rumblings that there's a bubble building here. Can you think of any examples in recent history when the rumblings of a bubble turned out to be hogwash?
That said, recent history also suggest that the rumblings of bubbliciousness tend to precede the ultimate burst by a good couple of years and the lead up to the burst has been where the most frantic run up takes place, so when bubble rumblings start, that might actually be the best time to get into a market... :-)
In this case, I don't think talking about definition is inevitably useless.
Defining could be determining characteristics of a bubble and figuring out how to recognize one. It's consequences (bursting) are, I think, not under dispute.
Inflation is usually driven by money supply. Print more money or expand supply some other way and you get some inflation.
Hyperinflation is driven by hyperinflation. That is, prices are rising so fast, that they are forced even higher. People rush to buy goods, commodities to get rid of rapidly devaluing money as fast as possible. This drives up prices. Governments need to print more all the time because what they printed last month isn't enough this month.
Financial bubbles are similar and different to overpricing in a similar way. They drive themselves.
"The valuations are high, and they'll probably fall in the future" implies (by the way I construe it) "considerably at variance from intrinsic values."
At least for Angel rounds and series A, IMHO the valuations are finally where they should be. I agree that they will probably go down, but not because they are intrinsically overvalued; rather, I think the investors will eventually just come up with new ways to tip the balance of power back toward themselves.
There definitely are a bunch of intrinsically overvalued startups that are raising a few hundred thousand bucks in angel rounds, but I suspect that we'll just see a gradual return toward using metrics when investing rather than some huge collapse.
You did reject their premise and then agree with their facts.
To someone with a 20 second attention span (or someone spreading 20 seconds' attention over 5 minutes of interview) that sounds like talking your book. Soviet Union has no problems. There are no little green men.
I don't know what you're obliged to say or not say, but you might get better results by reframing: "If this is a bubble, then bubbles happen every five years."
Seiji's comment is not phrased as a disagreement, but rather a statement about how people will perceive your views. When the way people perceive a statement is important, predictions about how the statement will be perceived is as or more important than the truth of falsity of the statement.
In terms of your hierarchy; I don't think that the take-home message from your hierarchy should be 'only ever say things that could be classified as DH6'. Discourse from authority or lack thereof has no place in scholarly correspondence of any form; everything should be based on the evidence available. However, non-experts often don't have the background or patience to evaluate claims about a certain field well enough to distinguish good reasoning from crank reasoning.
Arguments from authority are therefore sometimes necessary to convince people on things they aren't experts in, and an argument against this authority can be an appropriate response (e.g. arguments like 'this person is saying things at odds with what 99.9% of scientists in the relevant field say, and are making claims that are outside their area of expertise', or 'this person has a serious conflict of interest in saying that').
The YouTube video doesn't work for me with either gnash or Adobe SWF player (YouTube normally works, I don't know why this one doesn't - maybe geographic restrictions) so I can't respond to the content of the video. The title is certainly an appeal to authority - "PG says this".
Exactly. Saying there's no bubble is a far cry from saying that valuations are high and will go down/correct/whatever.
The digital media industry is a bit more mature now and the likelihood of a bubble is much less now. I imagine it will have it's ups and downs (as you said) just like any other industry. Also, a big difference between now and the late 90s is that companies are actually making money! The promise is starting to pay off.
The suggestion here is that YC's view is due to them not being impartial. I think a more likely explanation is that they are indifferent - their investment system has continued to allow them to 'buy low', even through-out this so called bubble, and AFAIK they only sell at maturity (aquisition / IPO), so the timing of the sales are not bubble timing driven.
If you see YC attempt to liquidate lots of their positions at once, then maybe your suggestion might ring true...
Buy low is contingent on sell high. Reaching sell high requires funding to live long enough for an exit. Constantly saying "there is no bubble" helps investors feel better about a three month old company claiming a $10MM+ valuation. "No bubble" also helps acquirers justify paying > $20MM for three guys sitting in their underwear typing on a computer for a few years.
(disclaimer tags: conspiracy, not aligned with reality, condescending, wrong numbers.)
In general, good investments should remain good investments even if there are no buyers. I'd bet this is true for startups as well. Overvaluations help, but aren't necessary.
I remember seeing a comment by pg that if he really thought there was a bubble and was cynically exploiting that fact, he just wouldn't say anything at all.
I think, from the perspective of pg and YC, there really is no bubble, at least with angel investments. With YC, high quality startups building things people want are raising enough money to bring products to market.
The real bubble is on the high end with Facebook's valuation jumping billions of dollars every week, even though they're obviously not creating billions of dollars of value in a week. That's the definition of speculation.
"... I remember seeing a comment by pg that if he really thought there was a bubble and was cynically exploiting that fact, he just wouldn't say anything at all. ..."
That was probably straight out of "How to Win Friends and Influence People". If there is a bubble, what you see is large transfers of money flow from people who want to risk capital to make profit. Does Milner, DST really understand "social media"? Probably not. There was a dig by Annie Lowrey a writing an article on Warren Buffet buying into railways in Slate that hints at this [0]. Is this a wise move by YCombinator? In the short term yes. In the longer term I'm not so sure. Why? If you want to understand the nature of an investor, follow the source and providence of the cash.
Yuri Milner > DST > Alisher Usmanov
The Milner investment trail leads straight back to Uzbeck Russia and old-school Oligarchy, something the Economist has noted. [1] Randomness didn't play a part in the success of DST as a company. [2] I can't believe pg isn't aware of this [3] and if you look carefully, the Milner deal is at arms-length of ycombinator. A deal good for all parties at the expense of appearing "murky".
[0] Annie Lowrey, Slate, "Working on the Railroad: All the big returns were in Singapore or Hong Kong or Silicon Valley, they said, so they put their money into hot social-media start-ups and emerging economies." ~ http://news.ycombinator.com/item?id=2277702
[2] "According to the 2010 edition of Forbes magazine, the oligarch is one of Russia's richest men, with a fortune estimated at US$19.9 billion, and the world's 100th richest person." ~ http://en.wikipedia.org/wiki/Alisher_Usmanov
[3] "There are a lot of ways to get rich... There are plenty of other ways to get money, including chance, speculation, marriage, inheritance, theft, extortion, fraud, monopoly, graft, lobbying, counterfeiting, and prospecting. Most of the greatest fortunes have probably involved several of these." ~ http://paulgraham.com/wealth.html
Just because there's speculation doesn't make it a bubble. Look at oil prices. They've been supremely inflated by commodities and futures traders, but they'll remain inflated as long as there's sufficient trading volume to keep them up. If they ever deflate, it's not like it will bankrupt the oil industry.
A tech bubble is only a problem if its bursting would destroy sufficient wealth so as to impact the viability of future innovation. Taking facebook as the canonical example, popping that bubble is only a problem if a lot of the wrong people lose their money. GS losing their money doesn't really hurt anybody but GS and their clients. FB's VCs have all gotten their money back by now, so they're fine.
In order for the bubble that everyone here fears (startups) to burst, you would have to have the widescale destruction of wealth through the failure of many highly-priced startups. It would have to remove enough investors from the market to make money "sticky", that is, to the point where it stops flowing. If you look at the silly valuations out there, Facebook isn't going anywhere and isn't losing money, so they've got time to figure things out. Groupon makes disgusting amounts of money. Twitter... well, they're dispensible and their valuation isn't too ridiculous.
Even the "service not business" startups aren't taking much money out of the ecosystem. We might be in for an adjustment, but it shouldn't get to the point where good startups have trouble finding money.
"CEOs of all major banks don't see a mortgage bubble!"