A primer on bubbly stocks
If you spend more than 5 minutes, you are overthinking it.
How would one go about putting their money in a stock before it runs up 10x in a short period of time (say in a year)? I am talking about the hype-y, bubbly stocks (because fundamentals don’t improve that quickly) and get out before it collapses into a blackhole like a star under its own weight.
A friend pointed out that hype is really hard to quantify (arguably that’s already overthinking it). At the end of the day, many people don’t bother with a DCF and make decisions based on emotion. In other words, how do you quantify “reflexivity” as Soros like to think about it?
This is my attempt.
Here are the essential qualities that a stock should have for it to become bubblicious:
Make no money (then valuation doesn’t matter)
Is part of the buzzing industry of the day/month/year (blue sky potential to get people dreaming)
Is championed by a person (a cult leader who can do no wrong)
The key is point #3, I think people (being people) like to personify ideas or associate ideas with people. Like who the f*** is Jesus? If you know the name of a person (e.g. Elon Musk), then the thing is hyped up enough for the people to care.
Taking the textbook chart of a bubble:
My bubbly primer in terms of my “champion” framework can be described as:
An obscure/specialist idea (100x potential): may stay that way or die, requires lot of research
A trigger and attention (10+x potential)
A company become associated with a person (e.g. the CEO): not so much “key person risk” but “key person opportunity” (10x potential)
“A Star Is Born” (2x potential): a god-like, cult-like leader
Cracks appear but the leader can do no wrong (-1x potential): the top
People absolutely hate the person: dead cat bounce, do nothing, reinvent for next bubble
I will leave it for you to do some case studies, e.g. TSLA 0.00%↑ , ARKK 0.00%↑ , GME 0.00%↑ , MSTR 0.00%↑ , PLTR 0.00%↑ .
If you are busy and have a life, jump into a stock at primer stage #3 and enjoy a 10 bagger.