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"Optimism is the faith that leads to achievement." | | — Helen Keller |
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In praise of irrational exuberance |
It's easy to be a naysayer. |
Christopher Columbus endured multiple rejections from both Portugal and Spain before a third appeal to Queen Isabella finally convinced her that a westward expedition to Asia was a worthwhile risk. |
At least 70 venture capital investors declined to fund Sandy Lerner's new networking startup, Cisco, before Don Valentine bought 30% of it for just $2.5 million. |
Twelve publishers turned down JK Rowling before a 13th chose to take a chance on Harry Potter. |
In hindsight, all these rejections seem like failures born of undue pessimism. |
But in each of these cases, there were ample reasons for caution: Columbus was completely wrong about the size of the globe; networking equipment eventually proved to be a commodity; and children don't usually read 300-page books. |
In fact, despite the outcomes, saying no was probably the right thing to do given the risks — as any poker player will tell you, you can't judge a decision by its outcome. |
I am a huge fan of Harry Potter, for example, but I also think choosing to publish it was an overly optimistic and therefore poor investment decision. |
Fortunately, the world of investing is full of such Dory-like optimism — because the non-investing world, on balance, is a better place as a result. |
No risks, no rewards |
US mega-cap tech stocks' relentless march higher may be dulling our recognition that investing in risk assets is meant to be, well, risky. |
Our 401ks are booming because the S&P 500 finished the first half of the year up another 15%, but that's entirely thanks to the outsized influence of just a few names at the top. |
Under the hood, things look a little less rosy: The equal-weight S&P is up only 5% year-to-date, and small-cap US stocks are down 5%. |
The latter is perhaps a needed reminder that risk assets don't always go up. |
Japanese equities made a new all-time high this year, but we should recall that the previous high was made in 1989. |
Twenty-five years is a long time to wait to get back to breakeven. |
US equities similarly spent 30 years in the wilderness between 1965 and 1995. |
Also, things can be far worse if you're not just passively investing in indexes: Crypto, for all of its success, has had only a handful of winners and many thousands of losers. |
Such investing futility may be less of an exception and more of a rule than the recent performance of US equities would have us believe. |
"Buy and hold" has become the received wisdom in investing, but without our recent experience to go on, John Maynard Keynes concluded the opposite: "Investment based on genuine long-term expectation is so difficult to-day as to be scarcely practicable." |
Similarly, the great Adam Smith thought long-term investors are simply deceiving themselves: "The chance of gain is by every man more or less over-valued, and the chance of loss is by most men under-valued." |
The economist Reuven Brenner later agreed, finding that investors display an optimism bias that leads them to take greater risks than a rational calculation of self-interest could possibly justify. |
All three of those great economists thought this tendency was generally a bad thing. |
Adam Smith, in particular, blamed investors' over-optimistic risk-taking for creating the financial manias that regularly destabilize economies. |
That view feels increasingly outmoded, though, perhaps because recent financial manias have given us things like high-speed internet, solar panels and electric vehicles — all financed at the expense of early investors who have little or nothing to show for the risks they took. |
This applies even more directly to the risks that founders take. |
In his upcoming book on risk-takers, Nate Silver quotes the co-founder of Y Combinator, Paul Graham, saying that optimism, strictly speaking, is "an error" — but also that "all successful founders are optimistic." |
If founders weren't making this error of optimism, not very much would get invented. |
Most significant inventions start with someone optimistically taking a risk, but we give founders a hard time for being successful — and we give investors a hard time for being either foolish or greedy (depending on how they do). |
Would we prefer them all to be pessimists? |
"If we all convince ourselves not to work because things are guaranteed to suck," Sam Altman says (again quoted by Silver), "it's a self-fulfilling prophecy." |
Fortunately, markets are full of both founders and investors that believe things generally don't suck — and that too seems to be a self-fulfilling prophecy. |
That doesn't mean things will work out for investors — just the opposite. |
Investors are currently taking an optimistic view that the hundreds of billions of dollars that a handful of our 401k investments are optimistically pouring into AI infrastructure will turn out to be a good long-term decision. |
Keynes and Smith would surely warn us that this type of exuberant thinking will be bad news for our portfolios — and I suspect they may be right. |
But I'm certain it will be good news for the world. |
— Byron Gilliam |
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A deeper look at Riot's 'hostile' bid to take over Bitfarms — Read Symbiotic aims to be the Uniswap of shared security — Read The time for US stablecoin regulation is now [Opinion] — Read Pi Squared raises $12.5 million to build universal ZK Circuit powered by Proof of Proof [Sponsored] — Read TRON founder Justin Sun wins landmark case in the People's Court of China [Sponsored ] — Read
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Ethereum's Best Path Forward: Aligning Security and Monetary Policy |
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Hasu and Justin Drake join the hosts for a deep dive into the effects of Ethereum monetary policy on the validator set and the current market for restaking. Tune in to hear their thoughts on attester-proposer separation and proposer-builder separation. |
Watch or listen to Bell Curve on YouTube, Spotify, or Apple. |
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| Dan Smith @smyyguy | |
| Replying to@gphummer | > Solana is now more expensive to use than Arbitrum >> Average fee is a less useful metric for measuring if "Chain A is more expensive than Chain B" as it captures priority demand for state. Median fee is a more interesting way of measuring this, given its roughly the cost to… x.com/i/web/status/1… | | | 4:54 PM • Jul 2, 2024 | | | | 56 Likes 6 Retweets | 6 Replies |
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| James Seyffart @JSeyff | |
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US #Bitcoin ETF flows have mostly stagnated. Not seeing tons of inflows, not seeing tons of outflows. Net inflows since launch sits at very healthy $14.7 billion BUT the trading volume for the group is definitely on a downtrend. The group hasn't hit $3 billion since mid May | | | 6:18 PM • Jul 2, 2024 | | | | 291 Likes 40 Retweets | 23 Replies |
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| Eric Balchunas @EricBalchunas | |
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Was surprised to check in on the bitcoin ETFs and see they actually had net positive flows for 1D, 1W and 1M. Was expecting worse given btc price fell $10k. During that stretch YTD net flow held steady at +14.6b. Good sign that number held strong during a 'step back' phase. | | | 12:22 PM • Jul 2, 2024 | | | | 1.6K Likes 234 Retweets | 62 Replies |
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