A Response to Sam Altman, and an Alternative Wager

Sam Altman grabbed some attention yesterday with a mildly provocative post at his blog: http://blog.samaltman.com/bubble-talk. Having been inclined to reply to his post with a tweet, and then completely unable to fit a response into 140 characters, I decided to expand my thoughts into a few paragraphs.

I believe that Sam’s post, as well as the response to it, unintentionally proves the point that he was attempting to refute. His post contains a few ancillary comments, but the key part of it is the bet itself. As I read it, his bet would require him to be correct on all three points, or he would lose. And, while all three sub-wagers seem plausible, they do not strike me as particularly likely. Combine the all-or-nothing aspect of his bet, and I would love to take the other side of it. To describe what I mean, consider that the first sub-wager proposes that on 1/1/2020 the six most-valuable private tech companies on a particular list from Fortune will be twice as valuable as they are today. Again, this sounds plausible. But consider that doubling in value is a compounded return of approximately 14% per annum, in an environment where long-term bonds return practically nothing. Without consulting historical data, I believe those returns are quite a bit higher than historical averages for somewhat-mature tech companies. The second sub-wager would require a compounded annual return of approximately 22%, an even dicier proposition.

I would love to take the other side of this bet. I think it is possible that Sam would win, but I believe the odds he would lose are significantly higher than 50%. However, as to the question of whether we are in a bubble, it is instructive to read the responses to the tweet where he links to his blog post: https://twitter.com/sama/status/580448623105830913. In dozens of responses, not only was nobody willing to take the other side of his bet, hardly anybody even voiced dissent. Some people picked at nits, but they were quickly scolded. One responder even pointed out that Sam could win the first wager if Uber manages to be worth $200B on its own, and quickly thereafter another person chimed in that this outcome was “inevitable.” (https://twitter.com/sacca/status/580505232318324737)

As another example of the mindset involved, consider this tweet: https://twitter.com/arrington/status/580487288238563328. Michael Arrington points out that $100k wagers between VCs do not do much to convince regular folks that we are not in a bubble. Then, hilariously, Marc Andreessen “corrects” him by pointing out that rather than a wager, the transaction in question is more correctly characterized as a “charity donation.” Forgive me, Marc, as you are a very astute observer, but I have to call you out on this one. This is a distinction without a difference. Whether a bet or a donation, it is still wealthy people throwing money around. And while I know that $100k is pocket change for the median VC whether in a bubble or not, what I am trying to point out here is the state of mind of everybody involved in this industry.

Now, having said all of this, I would like to point out that I agree completely with many of the secondary points that Sam makes. I do not care whether we are in a tech bubble, and while it is a mildly entertaining parlor game, the question has almost no value for investing or growing a business. I would also be tired of reading people claiming we are in a tech bubble, if only I bothered to read any of the copy on this topic.

What I do care about is making money. Unlike Sam and many of the other people commenting on this topic, I have not been fortunate enough to make so much of it that I will never have to worry about money again. And, while I would love to take his bet, it has no upside for me because the upside is that a charity gets the money, not me. While I would love to be able to donate $100k to charity for fun, I simply can’t afford to at the expense of my kids’ future.

What I can offer is a counter-proposal. Sam, I will take your bet, but not for charity. I can only afford to play for keeps. I also can’t wager that much money, but I can wager an amount that is significant to me. If you are interested in betting $10k on this, I’ll take you up on it.

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