Understanding Bubbles    

Bubbles happen when excitement moves prices and expectations beyond reality. People rush in, hoping to win big. Eventually, reality catches up, and the bubble bursts or at least diffuses.    

But bubbles aren't just about risk but also opportunity and progress.    

Throughout history, bubbles have fueled innovation. They bring in talent, capital, and energy that wouldn't exist otherwise. We don't have to look far to explore three recent bubbles—Crypto in 2021/ 2022, Multifamily Housing in 2021/ 2022, and AI in 2024/ 2025.    

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Why Do Bubbles Happen?    

Bubbles emerge when people believe they're witnessing the next big thing. The ingredients are always the same:        

• Excitement about new technology. Something revolutionary appears, and everyone wants in.
• FOMO (Fear of Missing Out). Seeing others succeed creates an urgency to invest.
• Easy access to money. When borrowing is cheap, speculation increases.
• Exaggerated expectations. Hype grows faster than reality can deliver.

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The Crypto Bubble (2021/2022): The Digital Revolution Wave.    

 Crypto promised to redefine finance. Early adopters saw potential, and soon, the entire world was watching. Prices soared, companies exploded in value, and everyone wanted a piece of the future.    

 Then came the crash.                

• Major platforms collapsed (FTX, Celsius).
• Scams and bad actors were exposed.
• Regulators were forced to take action, stifling progress.

     Despite the fallout, crypto didn't disappear. It matured. Blockchain and decentralized finance remain powerful ideas. The winners from this period appeared stronger and are defining the financial landscape for the next decade.    

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The Multifamily Bubble (2021/2022): Build It and ............. But They Might take a long time to Come.    

Investors believed that apartment buildings were the safest bet. Low interest rates fueled rapid construction. Every Tom, Dick, and Tech employee wanted to invest in Multifamily. But as rates climbed, the numbers stopped making sense.    

     What went wrong?    

• Developers built too much, assuming demand would never slow.
• Rising interest rates made financing harder.
• The short-term focus left investors struggling while navigating refinancings, higher vacancies, and lower rents.

Even with these challenges, the long-term result is more housing—a net positive and a relief with lower rents for the renters.    

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The AI Bubble (2024/2025): Yes, we are in One    

AI is changing how businesses operate. It's attracting billions in investment and reshaping industries. But history shows that when something looks unstoppable, reality eventually intervenes.    

     Signs of the AI bubble:    

• Startups with little substance are raising huge amounts of money, only to be spent on stockpiling GPUs and adding talent to the bench without any real revenue.
• The belief that AI will completely replace all jobs and tasks is overly optimistic. There are significant concerns about the revenue gap, as the substantial investments being made in AI development, especially in infrastructure such as GPU data centers, may not produce enough revenue to justify these expenditures.

     AI will endure, but not every company will. Declining prices for GPU computing are actually very good for long-term innovation and good for customers. Just like the internet survived the dot-com crash, AI will continue shaping our future using the learnings from this Bubble, even after the hype fades.    

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Why We Need Bubbles    

Bubbles may look reckless, but they drive progress. Without them, big ideas wouldn't get the funding or attention they need. Innovation thrives when people are willing to take risks.    

Here's why bubbles matter:                

• They accelerate breakthroughs. The internet, electric vehicles, space travel, and AI, all benefited from speculative investment.
• They attract talent. The best minds go where the action is.
• They create long-term winners. Even after a crash, the strongest companies survive and redefine industries.

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Customers Win the Most    

Investors may win or lose, but customers always benefit. When competition drives innovation, people get better products, lower costs, and new choices.    

• Tech becomes accessible. The internet started as an expensive experiment—now it's everywhere.
• Better services emerge. AI-powered tools are transforming industries, improving efficiency and convenience.
• Long-term improvements last. Even after a bubble bursts, what remains can ultimately shape the future.

The crypto, Multifamily, and AI bubbles all fueled advancements that will outlive short-term speculation.    

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How to Navigate Bubbles as Investors    

Winning in a bubble isn't about chasing hype but identifying real value. Here's how to approach it:    

• Focus on fundamentals. The best companies have solid business models, not just big promises.
• Don't blindly follow the crowd. When excitement peaks, take a step back and evaluate.
• Diversification: Don't bet the farm on a single bet. Even professional VCs and hedge funds spread their bets rather than on a single horse.
• Think long-term. The strongest innovations last beyond the bubble cycle.

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Bubbles Push Us Forward    

Bubbles are a natural part of progress. They create excitement, fuel investment, and bring in talent. While most companies might fail, the best ideas and innovations will survive and thrive.    

The key isn't avoiding bubbles—it's understanding them. The next one will come, just like the last, pushing the innovation forward.    

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