A couple of years ago I described the bubble pattern. It’s basically a
three four step pattern:
- Clever investors find a class of asset that is undervalued.
- Dumber investors find out what the clever investors are buying, and pour their money into that class of asset.
- 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.
- The bubble bursts.
Chris Dixon explains how this pattern has manifested in venture capital.