2) Large Numbers of Novice Investors Inexperienced investors are always ready to chase any new and exciting technology. Over the past decade, we've had Chinese small caps, cryptocurrencies and EV stocks like Tesla (Nasdaq: TSLA). Today newbie investors are called "Robinhood" investors. Instead of camping out at "bucket shops" watching stock tickers as they did in the 1890s, these investors trade stocks on their iPhones. Seasoned investors are far more skeptical of new technologies. Sir John Templeton shorted internet stocks at their peak. Charlie Munger famously called Bitcoin "rat poison." Wall Street's leading hedge fund managers Jim Chanos and David Einhorn have lost millions shorting Tesla. Yet, as Chanos' and Einhorn's losses show, in a technology bubble, the less experienced you are, the smarter you look. That is, until the day the bubble pops. 3) The Opportunity to Invest in "Pure Play" Firms "Pure play" firms are closely tied to the new technology. This technology could be the bicycle, radio or internet stocks. The "purer" the play, the more attractive the stock. Goldfarb and Kirsch cite the cautionary tale of eToys, a pure internet play on toys. "We're losing money fast on purpose to build our brand," Toby Lenk, CEO of eToys, proudly proclaimed in February 2000. At that moment, eToys was trading at $86 a share, implying an enterprise valuation of $7.7 billion. That was 35% more than brick-and-mortar industry leader Toys "R" Us. Back in the "real world," in 1999, eToys' revenues were $30 million. The same year, Toys "R" Us took in $30 million in a single day. By November 2000, eToys' stock had fallen from $86 to $6.25 a share. The stock eventually fell to $0.09 a share, and eToys shut down in March 2001. And the fate of eToys is hardly unique. 4) A Compelling Story A compelling story is another necessary condition of technology bubble stocks. Charles Lindbergh's trans-Atlantic flight helped drive the story of an optimistic future for aircraft companies. Elon Musk's predictions about EVs, solar energy and a million humans on Mars by 2050 are part of this long tradition. A compelling story makes Tesla more exciting than GM (NYSE: GM), even though GM also makes EVs. A compelling story makes Bitcoin more exciting than gold, even though gold has been a store of value for millennia. As Nobel Prize-winning psychologist Daniel Kahneman pointed out, it's easier to generate a good story when we have fewer hard facts. The less we know, the more we can fill in with our imagination. The lesson for investors? In the words of Goldfarb and Kirsch... These mistakes have been repeated countless times. That we get fooled is not surprising; narratives and stories are how we think. But with a better idea of how, when, and for whom these stories become costly, we can better avoid them.
So what do you think? Are we in a bubble? Or do you think current valuations are justified? Let us know in the comments section. Good investing, Nicholas | 
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