Unconventional wisdom: With bubble talk pervasive is now the time to be an investing hero?
An email predicting Nvidia’s downfall shows the jittery state of investors.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: With bubble talk pervasive is now the time to be an investing hero?
“To each there comes in their lifetime a special moment when they are figuratively tapped on the shoulder and offered the chance to do a very special thing, unique to them and fitted to their talents.”
- Winston Churchill
An email is going around my father-in-law’s friend group. It is a deeply pessimistic assessment of Nvidia’s prospects. In response some of my father-in-law’s mates are starting to trim their positions.
Is this a rational reaction to a compelling argument? Is this a sign of investor jitters after pervasive talk of a bubble? Whatever it is, many investors are on edge.
Crafting your own investing story
There is a familiar pattern to the arc of any good story. The character at the centre of the story is placed in an extreme position where the barriers between where they are and their ultimate ambition seem impossible to overcome.
Think of Winston Churchill isolated as a backbencher, tainted by the Dardanelles and in a lonely crusade to expose the dangers of a re-arming Germany. He was a long way from his self-declared destiny of becoming Prime Minister. What makes his story so compelling is he fulfilled his ambition.
For those of us who don’t come to personify the dogged spirit of an underdog standing up to evil we must settle for more pedestrian challenges and victories. Perhaps it is overcoming a rival at work or competing in some athletic endeavour.
You are the main protagonist in your life. And for many of us the thing that is at the centre of the arc of our own story is money. For most it is the challenge of getting ahead. For a fortunate few it is trying to maintain wealth.
On the surface this may seem crass. But money for money’s sake is not the point. It is what money represents that matters and the role it plays in each of our stories.
For some the narrative arc of life is defined by a desire for career success measured by the size of a paycheque.
For others willingly ignoring money is a badge of honour and a marker of their devotion to family, a vocation or a cause.
As an investor you may be motivated by the intellectual challenge or achieving specific goals. Either way the measurement of success is the same – more money.
Film producer and master storyteller Wolfgang Hammer summed up the role of money in our lives perfectly in a recent podcast interview:
“It’s (money’s) an unbelievably powerful symbol because it stores potentiality, so the mind can imagine anything. So it’s the ultimate story in some sense, where both all your desires and fantasies can be fulfilled and all your anxieties can be purged.”
The symbolic power of money and the desire to be the hero of your own story meaningfully influences the investment actions we all take.
A ‘systemic collapse unfolding in real-time’
The article being passed around my father-in-law’s group hit all the notes needed to push somebody over the edge who is believes we are witnessing a bubble on the verge of collapse. There are a lot of people with this mindset based on the conversations I’m having.
The article claimed AI discovered accounting irregularities in Nvidia’s financial statements. Pause to consider the irony if this dubious claim is true - artificial intelligence powered by Nvidia’s own chips orchestrates the downfall of the company. The similarities to the movie Terminator’s plot abound with slightly less drastic consequences.
According to the article AI’s discovery of accounting irregularities – before any human analyst could find them! - triggered algorithmic trading which sank the price of Nvidia shares. This was deemed to be unprecedented.
A cursory review of what actually happened provides some needed scepticism to this account.
Nvidia reported after the market was closed in the US on the 19th of November. In after-hours trading the stock went up and 20 minutes after the market opened it was 4.90% higher than the previous day close. The shares slowly drifted downwards over the course of the day and closed down 3.25%.
Did the share price swing? Yes, it did. Does this appear to be result of algorithmic trading triggered by instantaneous identification of accounting fraud by artificial intelligence? If so, our robot overlords took their time. To me this looks like the well-worn adage of buying the rumour and selling the news.
The introduction to the article ended with a dramatic flourish by proclaiming a systemic collapse was now unfolding in real time.
The article was posted on self-publishing platform Substack by an author with a minimal number of followers and a history of apocalyptic pronouncements. In a sign of the enduring wisdom that ‘if it bleeds, it leads’ the author has gained more followers.
I’ve come up with counterarguments for each of the claims by the author. They aren’t worth going through.
The summary is that I found it uncredible and the whole article appeared to be an exercise in deliberately playing on investor emotions. In that sense it worked.
Emotionally I want to believe the article and I want to believe we are in bubble about to collapse. My head tells me it makes no sense that my fathers-in-law’s friends sold their shares based on an article by some unknown author. My heart completely understands why they did.
Becoming the investing hero in your own story
We each craft stories about ourselves. We concoct narratives about where we want to end up or who we want to be. We add the same tried and true narrative arc we find so compelling in other’s stories to how we want our futures to turn out.
In our story we place ourselves as the underdog hero just like Churchill. And what does the underdog hero do when bubble talk is everywhere? The underdog hero sells to avoid the losses and later swoops in to take advantage of bargains.
Compelling stories hinge on bold action. The popular portrayal of successful investing reinforces this view. And there is a strong psychological pull to do something when we imagine how things will turn out.
Imagining scenarios of amassing wealth and the implications of how it would change your life can feel better that achieving those levels of wealth. Neuroscientists call this the Imagination Premium and studies have shown that more dopamine is released by the brain when anticipating something than when it occurs.
This also works in the opposite direction. Anticipatory anxiety is the fear of imagined events. In this case we tend to inflate the probability of things we fear occurring. This is why some people are paralysed by the fear of a low probability plane crash but are comfortable with the higher probability of a car accident.
Both can impact investors worried about a crash. Just remember that not all bold actions lead to success. One example is Churchill’s own father. Lord Randolph Churchill boldly resigned as Chancellor of the Exchequer – ironically arguing for lower military spending – and finished his few remaining days as a syphilitic cuckold who was a political outcast.
Final thoughts
There are many troubling signs with the AI boom. So far there is ample spending and few signs of clear ways to profit off AI. The overall economy isn’t doing great – especially if you remove AI spending – and inflation has jumped in many places including Australia.
Five companies – Microsoft, Amazon, Alphabet, Oracle and Meta – are projected to spend $375 billion US on AI in 2025. Morningstar estimates these same companies will spend $452 billion US in 2026.
Meanwhile, only 5% of ChatGPT customers currently pay for it. This looks dire. But if AI can deliver the promised efficiencies, it seems hard to believe the profits won’t come.
There is a bewildering array of cross investments where Nvidia funds their customers who in turn buy their microchips. Is this a last gasp effort to keep the party going? Is this offering a form of financing to customers which happens in many industries? It all depends on your perspective.
Since Nvidia reported earnings the shares are down close to 3.5%. The drop is not a ‘systemic collapse’. It is a reaction to news that Meta is in negotiations with Alphabet to buy their AI chips which may displace Nvidia. After a rough run the market has rebounded this week.
My heat screams bubble. My head tells me this bull run will continue and knows trying to time the market generally ends in failure.
Deep down we all want to be Winston. We want to take a stand and be proven right by subsequent events. We want to humble those that doubt us.
We all want to be the hero of our own story. At times like this it will cause us to believe things we want to believe and fall victim to confirmation bias by finding information that supports our views.
If you are feeling jittery about the market you aren’t alone. Now more than ever it is time to slow down and think through any actions you take. Sometimes being the hero of your own story means doing nothing.
Email me at [email protected] with your thoughts.
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What I’ve been eating
Six years ago Bastardo opened steps away from my apartment. Like an idiot I spent those six years not eating their meatballs. I’ve been going to their sister restaurant Porteno. I frequent their bakery Humble. I’m not sure what I was thinking by avoiding Bastardo.
Meatballs are so easy to screw up. Many are too dry and too dense. Some fall apart because there isn’t enough binding agent. Bastardo made none of these mistakes. Pictured is the Wagyu Meatballs served with red sauce and some amazing brioche garlic bread.
