A couple of years ago I described the bubble pattern. It’s basically a three four step pattern:

  1. Clever investors find a class of asset that is undervalued.
  2. Dumber investors find out what the clever investors are buying, and pour their money into that class of asset.
  3. Bankers work as hard as they can to increase the supply of assets in that class, despite the fact that these assets are no longer really a good investment.
  4. The bubble bursts.

Chris Dixon explains how this pattern has manifested in venture capital.