“History doesn’t repeat itself, but it often rhymes.” – Human nature doesn’t change much, just the toys we gamble with do.
📈 INTRODUCTION: HUMAN NATURE & MARKET CYCLES
There have been real bursts of speculation in the market—you know that. And eventually, it does get corrected. Ben Graham was right when he said that in the short run, the market is a voting machine, but in the long run, it’s a weighing machine. Sooner or later, the amount of cash a business can generate in the future governs its value. But it can take a long time.
Humans tend to be overly optimistic in bull markets and excessively fearful in bear markets. We chase fads, jump into bubbles, and then wonder why we’re left holding the bag. This cycle is as old as markets themselves. Understanding where we are in the cycle—and which machine is in charge—is crucial.
📊 HISTORY REPEATS: THE DOT-COM BUBBLE & THE GREATER FOOL
Remember the Dot-Com Bubble? Priceline.com shares debuted at $16 and closed at $69—a rise of over 330%. EarthWeb was up 379%, and TheGlobe.com, which only traded for one day, gained 606% in a single week. Akamai—Hawaiian for “cool technology company”—soared more than 450%. FreeMarkets went public and shot up about 482%.
These numbers weren’t backed by profits or cash flow. They were driven by the greater fool theory: someone has to be a greater fool than you to buy it—or the whole thing collapses. Eventually, the fools run out, and reality checks in with a vengeance. The crash that followed wiped out trillions of dollars in wealth and served as a painful lesson for a generation of investors.
💥 THE PRESENT: MARCH 2025 MELTDOWN
Fast-forward to March 2025: Wall Street sees a tech-led selloff. The NASDAQ sank over 2.5%, ending just shy of its lowest close of the year. With one trading day left in Q1, the index is pacing for its worst quarter in nearly three years. The “Magnificent 7” were all down, losing over half a trillion dollars. The S&P, Dow, and Russell 2000 also tumbled.
The catalyst? Hot inflation data and the Fed’s preferred pricing metrics beating estimates. Investors had been hoping for a Fed pivot, but the numbers don’t lie. Rising prices and sticky inflation leave little room for error—or rate cuts.
In the end, valuation does count. But when enough people throw money at hype, the truth gets delayed—not denied. And when it catches up, it doesn’t knock. It kicks the door down.
☠️ WRETCHED EXCESS: MUNGER’S WARNING
Charlie Munger put it best: “Wretched excess” comes with wretched consequences. When you mix Ponzi-scheme math with legitimate innovations like the internet—or now AI—you create something irrational and dangerous.
Just because an idea has merit doesn’t mean any price is justified. As Munger said, if you mix raisins with turds, it’s still turds. The presence of a few good ideas doesn’t validate the broader mania.
📚 THE INTELLIGENT INVESTOR’S PRINCIPLE
You’ve seen the voting machine—BULLS running rampant, marketing guys are kings, PE ratios sky-high. Now comes the weighing machine—BEARS walking with accountants. Ben Graham’s principle from The Intelligent Investor is timeless: short-term hype fades, long-term value remains.
Many investors only understand this in hindsight. They dismiss valuation, embrace hype, and chase momentum—until the weighing machine flips the script. The BULLS tossed the book. Months later, they’re digging through dumpsters to find it again.
🔁 HISTORY’S LOOP: RETAIL INVESTORS & MANIAS
Retail investors get drawn in during manias. First comes excitement—the voting machine. But when it flips to the weighing machine, they get confused and hurt. It feels like betrayal. They ask, “What happened?”
This cycle repeats because most investors don’t study history, and even those who do often believe “this time is different.” My goal is to reduce the number of victims. Most won’t listen. But if even a few do? Worth it.
⏳ TIME & TIMING: THE LONG WAIT FOR DOT-COM INVESTORS
Let’s talk dot-com again. I was there—young and foolish. When the bubble burst, it took years—even decades—to recover, if ever. Akamai never hit its old highs. Cisco and Intel? Same story. MicroStrategy re-emerged only thanks to a new bubble: Bitcoin.
This is why I reject the phrase “Time in the market beats timing the market.” When the signs are clear, timing matters. You don’t need to catch the top, but you do need to know when the tide is turning. Life is too short to wait 16 years to break even.
🔄 THE 2022 TECH DROP VS TODAY
Some say, “But Meta and Netflix crashed in 2022 and came back.” Yes—but for different reasons. They were overspending. Once they cut costs and improved profitability, they rebounded. That was not the weighing machine.
Now? We’re in weighing machine territory—with stagflation, geopolitical instability, and a fundamental psychological shift. Unlike in 2022, there’s no Fed safety net, no blank check. This time, the pain might linger.
⚖️ VOTING VS. WEIGHING
Voting Machine: Valuations don’t matter. Hype rules.
Weighing Machine: Valuations matter. Fundamentals rule.
Take Palantir. Inflated by influencer hype, it soared. But now? It’s down 40% from its peak. Flip the chart upside down—it looks like a buy. But that just shows how retail brains are wired to chase patterns, not logic.
Even great companies can become bad investments if bought at the wrong price. Valuation is the anchor. Without it, you’re just drifting on sentiment.
🤖 ARE WE IN AN AI BUBBLE?
It’s the question buzzing across financial media, YouTube thumbnails, and dinner tables of tech investors: are we in an AI bubble?
Let’s look at the signs. Massive surges in stock prices have followed every whisper of AI integration—even from companies with little to no real AI infrastructure. Many firms added “AI” to their earnings calls, websites, or product names, and watched their market cap skyrocket. Sound familiar? It should—it’s eerily reminiscent of the dot-com era, when adding “.com” to your company name could double your stock price overnight.
We’ve seen price-to-earnings ratios in AI-adjacent companies soar far beyond reasonable expectations. Nvidia, for example, is a real leader in AI infrastructure—but its stock price has priced in not just dominance, but perfection. Others like C3.ai, Palantir, and lesser-known firms have seen wild volatility with little fundamental justification.
There’s no doubt AI is a transformative technology—perhaps bigger than the internet itself. But bubbles don’t form around bad ideas; they form around good ideas taken too far. The fundamentals must catch up to the narrative, or the narrative will eventually collapse under the weight of reality. That’s the job of the weighing machine.
A true test of an AI company’s value will be whether they generate sustainable cash flows, serve real enterprise demand, and prove their models and platforms can scale. Until then, investors should tread carefully, because bubbles aren’t obvious until they pop—and by then, it’s too late.
🧠 FINAL THOUGHTS: THE TRUTH CATCHES UP
In markets, loud voices often drown out sound logic. But gravity always wins. The weighing machine always comes. And when it does, hype is squeezed out like old toothpaste.
Be cautious. Be skeptical. Popular doesn’t mean permanent. Valuation isn’t a suggestion—it’s reality knocking.
Don’t be the greater fool. Study the past. Respect the cycle. Invest with your brain, not your dopamine.
📘 GLOSSARY
🔻 BEAR MARKET
A bear market is a period when stock prices are falling, usually by 20% or more, and investor sentiment is pessimistic or fearful.
- Emotion-driven
- Often tied to recessions or economic slowdowns
- Risk aversion and heavy selling dominate
🐂 BULL MARKET
A bull market is a period when stock prices are rising, typically by 20% or more, with widespread optimism and investor confidence.
- Driven by earnings growth and economic momentum
- Encourages risk-taking
- Generally lasts longer than bear markets
🗳️ VOTING MACHINE (Short-Term View)
Coined by Benjamin Graham, this refers to how, in the short term, markets act like a popularity contest.
- Prices reflect hype, emotion, and media buzz
- Prone to fads and overreactions
- Think: meme stocks, AI buzzwords, Twitter-fueled runs
⚖️ WEIGHING MACHINE (Long-Term View)
Also from Graham’s philosophy: over time, markets reflect true value.
- Prices align with fundamentals like earnings and cash flow
- Ignores short-term drama
- Think: Buffett-style investing
🧩 CONNECTION BETWEEN THEM ALL
- Bull markets often fuel the voting machine with optimism and emotion.
- Bear markets expose reality through the weighing machine.
- Smart investors watch the shift—and act accordingly.
- Ignore the noise, follow the numbers.
EXTRA CREDIT
The Wall of Worry
It’s All About Timing: Lessons from the Market and the Wind
Trader vs Investor
Why We Win, Why We Lose, and Why We Never Learn
The Time Value of Money
TRUMP’S TARRIFS
The Rapid Progress of AI and Its Growing Influence
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