Thank you guys for your kind comments and for your valuable opinions!
Good read OP. Thats what I observe in last years of my presence on market (regulated stock market and crypto market). Undervalued assets remains undervalud for years, technical indicators are raped one after another. Everything moves in pump/dump like movements. People no longer use math and economy to invest. They use dreams and emotions. I think that evolution of narratives (from undervalued assets, to well priced with good perspective to "yolo, buy the story, give me lambo") is somehow connected to printers doing brrrr and cash surplus, disappearing options to protect it against inflation, increasing amount of retail investors, attracting younger and less experienced investors to the market, 12 years of bull market in US and many more.
You are absolutely right. That's actually what I observed too while working for activist investment fund where they try to find undervalued assets (thus there's possible upside when market realizes the asset value) + try to create value for the company themselves. Yet, over the many years, if the company doesn't become popular (i.e. like Tesla and those) - no matter how good or strong its fundamentals - it will remain undervalued for decades. If you check the performance of other activist funds - they also start to struggle to earn decent returns, and I assume it's for the same reason. I think you summarized the main drivers behind that transition pretty well about expansionary monetary policy, retail investors, etc. As a good evidence of that is also the sad story about the trader of Robinhood who got a negative $730,000 balance and decided to end his life. Before at least it were professional Wall Street professionals committing suicides
but now it's regular people who didn't know what and what for they trade.
Thank you, thread author! A very interesting and useful topic.
I first learned about promising altcoins in 2017. I asked myself the question - which altcoin should I invest in? In my opinion, the main criterion for a good investment object is the developer's ambitions. A developer's ambitions are the stories they tell. Storytelling is very important in the crypto industry.
In June 2017, I loved the story told by Dan Larimer. These were stories about the killer Ethereum, about the first blockchain operating system, about global corporations that would seek to buy EOS cryptocurrency for themselves. It was a beautiful story.
Dan Larimer wrote in one of his articles that EOS will cost $ 30. At the same time, this cryptocurrency could be bought for 0.6 - 0.8 dollars. EOS's price never hit $ 30. However, in May 2018, she bet $ 21. At this price, I sold my coins.
When the mainnet launched, telling beautiful stories became more difficult and the price of EOS plummeted ...
It's "sad but true" that you mentioned that "Storytelling is very important in the crypto industry". Way too many people rely entirely on stories, and due to that lose their money (to the ones who exploit those stories {either project teams, either early investors ("greater fool theory":
https://en.wikipedia.org/wiki/Greater_fool_theory)}). I agree with your opinion, except for one part only that "the main criterion for a good investment object is the developer's ambitions". Sorry, but I think this is wrong. I personally might have ambition to overtake NYSE & NASDAQ, but I might be completely ignorant and have no idea how business works. Then you are in a bad investment. But I see how other people followed the same logic, and this is what always made me smile - when literally a bunch of kids or recent grads without work experience or obvious scams / ICO-"prostitutes" (a term in Russian for people who sell their faces to different projects just to add "recognized" team members) claim that they gonna make the next CME in derivatives, or HSBC but on blockchain, or something else. From my personal perspective - of course ambition is a great thing, and if you don't have one - you shouldn't be doing own project / company / startup (as they say "The soldier who doesn't dream to be a general is a bad soldier"). But the ambitions should be reasonable. Like if some kid from Ukraine says he is gonna do next Facebook on blockchain - I definitely will turn down such project; if Elon Musk says he is gonna do next Facebook - I believe, because he has resources, money and experience; if the kid from Europe says he is gonna do some ad-on for Facebook or improve some minor area - that sounds more reasonable and doable.
As for EOS, I also invested there before, when I was engaged in investments, but luckily I bought at around $1-1.5 back in 2017, but I liquidated all of it in April, and the rest of crypto portfolio together with BTC in the end of 2018, so I can't complain about returns
but as I mentioned - my opinion is that if you are able to predict the development of narrative and how it will be perceived, or can exploit it - you might be well positioned in current investment area, otherwise, it's not very good idea to base investment decision entirely on promises or ambitions (especially dev teams' cuz they are not businessmen, they are just tech guys, and developing a narrative or good and stable business requires a different skillset).
I think the description of the historical eras hit the nail pretty much on the head, but with the 2010s onwards I'm not so sure.
While the label "narrative economy" (or rather "narrative investing") does make sense, generally speaking, I would not see it as part of economic evolution but rather as a short phase that usually precedes a bubble. Take the dotcom bubble for example. Sure, it may have started as an example of growth investing, but it ended up as investors telling themselves fantastic stories about the companies they are investing in. Or if you look further back in history, the South Sea bubble. Investors telling themselves fantastic stories about unimaginable riches across the pond. Even outside of bubbles you often see a bit of a narrative factor at play. That's why exciting stocks mostly come at a bit of a premium, regardless of growth potential.
Now I'm not saying that narrative investing had its play in every bubble -- both the US and Japanese housing crises had mostly other root causes -- but once investors turn to narratives rather than facts, by definition they are decoupling from reality. And while that may work for a little while, it's rarely a good sign.
I was thinking about the same examples actually with the dotcom & South Sea
yes, you are absolutely right that at those periods the reason for crashes was ultimately the narrative-based logic, but those were isolated examples within specific niches / companies / markets. But nowadays, in the past decade or so, it appears to me that this is very persistent and is now the only way to make alpha in the market. Thus, can't we mark it as investment/economic paradigm shift? As I mentioned above about my previous work experience (+ other value/growth/activist/etc. funds), and as mentioned change of global factors by Tytanowy Janusz above, it appears that this is the strategy for now.
I know that dotcom, US/Japanese/(now Chinese?) real estate markets started growing for a good reason, but ended up in the "narrative" area with the known results, but now this narrative-based logic appears to be literally in every area - from the American large caps, to Chinese small caps, Russian mid caps, cryptos, PE/VC, seed startups, DeFis, fixed-income, new tech, ... you can continue the list. Whoever is not part of the fancy "next great X" or "will change the world in Y" - is losing, whoever is in - is earning. And I believe the greatest evidence that it's not just a small market hype or craziness, but the "new normal" is again it's prolonged history of it for over a decade. Now is the only time when everyone around expects market(s) to crash, but it doesn't, while before everyone expected market to go on raising, and it eventually crashed.
Not sure who said that, but I read ones that "if everyone expects a certain thing to happen - it will not happen, when everyone isn't expecting that to happen - it eventually will", and this thing is again the market crash, which people predicted in 2010, 2012, 2013, 2014, 2015, 16, 17, 18, 19, 20, and now 21... Yet, all markets which are part of the great narrative continue to hit ATHs, and the short sellers (of Tesla, Bitcoin, Zoom, cannabis stocks, tech, solar energy, ESG, real estate EFTs, etc.) keep losing.