
Bubble talk (2015) - Miraries
https://blog.samaltman.com/bubble-talk
======
iamsb
I dont think he won the first bet did he? Airbnb, Palantir, Dropbox, Uber,
Spacex, and Pinterest together are less than 200 bn and falling. All still
pretty good companies (not you Uber), doing interesting things though.

bet 2 - I have not done the calculation, but just stripe puts it way beyond
the 27 bn figgure.

bet 3 - plenty of good companies in that batch. Razorpay was valued at half a
billion dollars in last round. Overall seems like he was right.
[https://www.ycdb.co/batch/w15](https://www.ycdb.co/batch/w15)

~~~
virgilp
Uber: 50.73 bln Spacex: 33.3 bln? Airbnb: 35 bln? Palantir: 26 bln ?
Pinterest: 10.4Bln Dropbox: 7.44 Bln

They are far from $200bln, so he certainly lost the first one. Might have won
the other 3 though.

~~~
JohnJamesRambo
To me, the outcome is just another example of the power of diversification and
that we really don’t know anything about which stocks or companies are best.
Stripe alone made Bet 2 worth it.

~~~
stereolambda
I'm inclined to read it as early opportunities having the highest average
growth potential. Big companies are more likely to be already around their
actual ceiling.

------
glofish
Datapoint for reference: if you invested in an SP500 fund during the same time
you would have roughly doubled (around 180%) your money (an annualized return
of 11%).

~~~
nabla9
That's the proper comparison.

Investing into startups and unicorns should provide significant yield over
diversified and less risky investment. Getting the same result from taking
more risk is not a good investment.

from the end of March 30, 2015

+56% SP500 Price index

+70% SP500 Total return index

+83% Nasdaq price index

Uber, Palantir, Airbnb, Dropbox, Pinterest, and SpaceX doubling their
valuations would give only +3.2% annualized return over Nasdaq. I don't see
the risk/reward ratio of a good investment if the price just doubles in that
period.

(FAANG is another good comparison).

~~~
iamsb
How is investing in companies which are already 100 bn in valuations more
risky than SP500?

I am sure all investors who put money in these companies when they were risky,
made very good returns, far more than SP500.

~~~
nabla9
It's not the size but the way they operate:

* plan is to forego profits to gain market share, negative earnings

* free cash flow is negative

* lots of debt.

Dropbox -40%, Uber -28%, Pinterest -23% since the IPO.

------
maehwasu
Regardless of the fact that he missed by a bit, this type of writing is way
more valuable than the standard NYT/Bloomberg "OMG IS IT A BUBBLE???"
articles?

~~~
MichaelApproved
I would say so. The writer is giving analysis with money and reputation on the
line using specific metrics.

It gives us something to measure and review. It also adds/removes credibility
when we read another article with his analysis.

------
ksec
>Of course, there could be a macro collapse in 2018 or 2019, which wouldn’t
have time to recover by 2020.

Which hasn't happened...

There was another thread about bubble and calling me out. Just to point out,
If you bought S&P Index in 2015 you would now have roughly 200% return.

But this is in the context of tech. We forget Apple, Microsoft, Google are not
just doing _fine_ , they are doing great. And not just in US, TSMC and Samsung
representing SemiConductor industry are all doing great, thanks to those
ridiculous profits from NAND and DRAM; Samsung is reinvesting everything into
making DRAM NAND and Foundry more competitive. Which will hopefully fence off
those State sponsored Chinese Competition.

In terms of Startup, While Sam might have loss on first proposition ( I think
he won the other 2 ), but they are operating just fine with similar valuation
if not more, just not meeting the 200B target. Unlike other Startup that
cashes in from IPO and then devalued into nothing.

Will we see a correction? Very likely. Are we in a bubble? No, at least not
yet. ( Unless you like to redefine any correction as bubble burst )

~~~
OnlineGladiator
> Are we in a bubble? No, at least not yet.

I agree with everything you said except for this. Not because I am
definitively saying we are in a bubble, but just pointing out it's impossible
to know if we are. Very few people saw the last financial collapse coming.

~~~
ksec
[https://imgur.com/a/7ntUkKC](https://imgur.com/a/7ntUkKC)

That is a simple chart of recent 30 Yrs S&P 500 P/E.

> Very few people saw the last financial collapse coming

While media points the last financial collapse blame to CDOs, the fundamentals
of it was housing prices. May be it is new to many Americans, but for those
who have lived and seen through Japan, South Korea, Hong Kong housing prices
collapses in the 90s, it was rather obvious. I remember the moment when I
mention it in 2005 and 2006, but no one believe market would collapse, the
idea of housing prices would fall was literally unheard of.

[https://imgur.com/a/0jPNE26](https://imgur.com/a/0jPNE26)

Now there are concerns of Cooperate Debt reaches new height, which is often
the argument of bubble. The trouble is you cant look at cooperate debt alone
and judge it. Amazon is 25B in debt, but they have 45B in cash. Apple are 100B
in debt, but also ~250B cash. Amazon were issuing at 10 years and yields about
3.2%, for reference US 30 Yr treasuries has been floating at around 2.4 The
vast majority of companies are swimming in cash. ( There is less of it now
because of buy backs, which is what pushes those stock prices up )

So while the market, and general economy may not be _healthy_ , I argued it
isn't in a bubble either.

~~~
OnlineGladiator
> So while the market, and general economy may not be healthy, I argued it
> isn't in a bubble either.

You're completely missing the point. You can make arguments either way.
Hindsight is 20/20\. You're making an educated guess based on data which is
informative, but it's theoretically impossible to predict a Black Swan event.
And even without a Black Swan event, your analysis could be wrong. It's not
like all analysts agree on much (if anything) - so how do you decide who's
right when nobody has a perfect track record? You're making the best guess you
can and I respect your analysis, but I don't assume it's correct.

My point is simple: _nobody_ knows for sure.

~~~
ksec
I sort of agree with what you said.

>My point is simple: nobody knows for sure.

Absolutely. I am suggesting to those who consistently points to doom's day
needs better explanation rather than just debt alone.

Edit: Actually it was my understanding that all bubbles, by definition must
have some form or irregularities or speculation. After all that is what
bubbles means, turns out when I was going to quote wiki for this reply, I
discover there are whole set of economic papers suggesting bubbles completely
unrelated to its intrinsic value and economic fundamentals. Will Read those
paper when I have time.

------
NhanH
No macro collapse, and the first proposition didn't work out: Uber: 50B,
Palantir < 40B, Airbnb < 40B, Dropbox < 10B, Pinterest ~10B, SpaceX < 40B. So
total 160-180B market cap. Close, but not quite.

~~~
cm2012
Biggest difference was that the public market valued a bunch of these
companies waaay less than VCs did.

~~~
iamsb
So it was a bubble then?

~~~
cm2012
Not sure if it's the right nomenclature, since bubbles are supposed to be pop.
Instead they just grew in value slower than they were.

~~~
Waterluvian
The muffins didn't rise properly.

------
MarkMc
Although Sam would have lost this bet, I respect that he had the courage to
make a forecast with a specific number and a specific future date.

Too many pundits make grand but imprecise predictions like "AI will become
dominant in the next decade". The book 'Superforcasting' tackles this problem
in detail: [https://www.amazon.com/Superforecasting-Science-
Prediction-P...](https://www.amazon.com/Superforecasting-Science-Prediction-
Philip-Tetlock/dp/0804136718)

~~~
harryh
If I recall correctly, the bet was accepted.

EDIT: Ah, I found documentation:

"Michael de la Maza, a Boston-based investor and TechStars mentor, has taken
my recent bet on valuations."

[https://twitter.com/sama/status/582292425449730049](https://twitter.com/sama/status/582292425449730049)

~~~
mdlm
Thanks for using Twitter to remind Mr. Altman of the bet.

------
mdorazio
I'm actually surprised that he didn't win this bet since it wasn't really
based on non-bubble metrics in the first place. A more interesting bet to me
would have have involved profitability, P/E ratio, or some other long-term
indicator that current high-rolling unicorns are actually sustainable
businesses. I think WeWork has demonstrated pretty clearly that billions of
dollars of VC money can prop up unsustainable companies for more than 5 years
(i.e. the market can remain irrational longer than the term of this bet).

------
mattmaroon
His bet was a parlay so it lost, but not by a lot. Had he been able to include
Snapchat it probably would have done worse.

I think what we’ve seen in the last five years is that there’s some bubble-
like irrationally exuberance but overall it’s far from 2000 all over again.
Companies have high valuations but this time also often have financials and
growth prospects to go with them.

~~~
mdlm
Matt,

When will portfolio 1 reach $200B?

Michael

~~~
mattmaroon
I certainly don’t know.

------
fyp
People were projecting that he will lose last year:
[https://news.ycombinator.com/item?id=18792890](https://news.ycombinator.com/item?id=18792890)

------
probe
He technically has until March of 2020. I still think there’s a chance that he
pulls #1 off (SpaceX pulling off human flights in Q1 and re-raises, Airbnb
going public as a profitable and defensible business, Uber and rationalization
in ridesharing and delivery + continued execution)

~~~
kick
...no? He said it himself, he has until January 1st of 2020. He lost the bet.

------
Ecco
So... Did he win? I’m especially curious about part 3 :)

~~~
Matticus_Rex
Part 1 didn't quite make it. Eyeballing it I think it's around $150B, which I
think still substantially backs his point, but it loses him the bet.

Part 2 was an easy win from Stripe alone.

I scanned the YC '15 Winter list and I don't think I recognize any of them.
Someone could track it better via Crunchbase, but I rather doubt that he bet
correctly there either.

EDIT: Oh, GitLab.

~~~
user402
Part 3: Gitlab alone is almost $3B

~~~
Matticus_Rex
Ah, cool. Missed them somehow.

------
grumpy8
Sucks that Sam lost his bet because as far as I'm concerned he "won" his point
(I.e. there was clearly not a bubble and all these 1,2,3 companies did
amazing). Still, it's great that it's going to a charity

------
austhrow743
Wonder who took the other side and where they chose for him to donate to.

Edited due to ambiguity.

~~~
317070
Well, the other side won. So the other side will not need to donate. Albeit
that it was close.

~~~
austhrow743
Sorry for my poor wording. "He" was referring to Sam.

------
aguyfromnb
Seems odd to me to deny bubble talk, then base "success" on market cap.
Outsized market caps are associated with bubbles. There are a few companies in
there for which survival is questionable.

~~~
harryh
The idea of the bet was that if there was a bubble in 2015 it would have
deflated by now.

------
chrisked
Bet 1 should be less than 200bn. Bet 2+3 was spot on and easily won.

------
throwGuardian
Many here are claiming he lost the bet on #1, but consider the details:

Predicted Aggregate value: $200B

Actual value: $145B (Math in [1])

His prediction is off by 25%. Technically a lost bet, but I'd say a prudent
bet as a VC.

As for #2, #3, he wins them outright. Overall, being 25% off the most
optimistic prediction isn't too bad a loss. I'd say he won the argument
convincingly.

I will note that anyone above average intellect in his position (as an
investor with gobbles of analytics, best in class prediction models and
advisors, and access to thousands of high quality pitches to see down the
pipeline) would likely predict as he did, so while he won, he wasn't
clairvoyant, he was merely following the data.

[1]: Math: Uber: $50B

SpaceX: $35B.

Airbnb: $35B

Palantir: $25B

Pinterest: $10B

Dropbox: $7.5B

------
everybodyknows
2015, March.

~~~
everybodyknows
Original title lacked a date -- and comment pointing out the omission gets
downvoted. Such downvotes are destructive to the quality of information on HN.
@dang?

------
blantonl
The market can stay irrational longer than you can stay solvent.

~~~
H8crilA
Yeah, a better bet would be about those companies actually delivering profits
and "growing into their vaulations", as people politely put it. None of those
companies have earned a single dollar for shareholders. Not a single dollar.

~~~
MichaelApproved
> _None of those companies have earned a single dollar for shareholders._

Is that what shareholders are asking for, right now? Don’t they want fast
growth more than they want profits?

~~~
H8crilA
I suppose, yes, and this is a little scary - the world being in such a state
that you can wait 10 years for a company to make profits and it is still
considered OK. Cheapening money.

But also how much longer can we wait? Google, Apple, Microsoft and Facebook
were all turning profit _before the IPO_! Find the old S-1s if you don't
believe me. And back in those days IPOs happened much much earlier.

~~~
MichaelApproved
I think Amazon is one of the rare examples where it paid off. They were making
losses in exchange for extreme growth in many sectors.

~~~
anongraddebt
Correct me if I'm wrong, but Amazon was strongly cash flow positive as of
2002. Moreover, their operations were throwing off cash the year they went
public (1997).

Everyone should be considering this a bit more because it says something about
the irrationality of the current market. Large VC funds were investing under
the thesis that some of the current crop of (now) less than impressive
unicorns could follow the Amazon model: invest in growth at the expense of net
income. These unicorns haven't simply failed to produce positive net income by
intentionally following the Amazon model, rather they've simply burned through
mountains of cash following less than impressive business models. They never
followed the Amazon model to begin with.

