The Wave-and-Bubble Pair
Stop debating whether it is real or a bubble; assume both and sort the participants
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 7
- Confidence
- 87%
Drawn from Carlota Perez's Technological Revolutions and Financial Capital, this is a classification model rather than a timing tool. The premise: every technology wave that creates wealth quickly will attract speculators, carpet baggers, and interlopers who want to capture some of it. Therefore, if the wave is real, you should expect bubble-like behaviour. The two are a pair, arriving together, precisely because rapid wealth creation is the magnet. This dissolves the gotcha framing where saying 'bubble' is heard as saying 'the technology is fake'. The practical output is a sorting exercise: for any given opportunity, work out whether the counterparty is building the wave or harvesting the crowd. Gurley's diagnostic markers include circular financing between large players and a proliferation of retail-facing special purpose vehicles at the fringe.
Origin
Extracted from The Tim Ferriss Show. Gurley's Benchmark partner Peter reminded him of Carlota Perez's 2002 book Technological Revolutions and Financial Capital, which Gurley found to be the cleanest lens for judging whether the AI cycle constituted a bubble.
Core principles
- 01A genuine technology wave and speculative excess arrive as a pair, not as alternatives.
- 02Fast wealth creation mechanically attracts speculators, carpet baggers, and interlopers.
- 03Believing in the technology is not an argument against there being a bubble.
- 04Loss aversion falls when people are winning, so even sophisticated players get speculative.
- 05Accounting hygiene degrades near the peak; circular deals are a symptom worth reading.
How to run it
- 1
Refuse the binary
Explicitly separate the technology question from the pricing question and answer them independently. Conflating them is the error the model exists to correct.
Pro tip State both answers out loud: the wave is real, and the financing is speculative.
- 2
Confirm the wave is real
Assess whether the underlying technology is genuinely changing how work gets done, independent of asset prices.
- 3
Expect and locate the speculation
If the wave is real, actively look for the bubble behaviour rather than assuming its absence disproves risk. Rapid wealth creation guarantees an influx of opportunists.
- 4
Read the accounting for hygiene loss
Look for circular deals where a supplier funds a customer who then buys their services back. Gurley's test: if it were crisp, clean accounting, you would not do these things.
Pro tip When a company says a circular deal is immaterial, ask why they bothered doing it.
Watch out Even large, sophisticated players do this, because loss aversion falls when you are winning.
- 5
Classify each counterparty
For every deal in front of you, decide whether the promoter is a builder or an interloper who arrived with the wealth. Vehicles promoted to non-professionals, sometimes without the underlying stock secured, sit firmly in the second category.
- 6
Discount for late entry
Check when the hundred-times returns you are extrapolating were actually earned. Gurley's view is that they were made well before the current phase, and that incremental odds now are very low.
- 7
Stress-test your own tolerance
Assume your real risk tolerance differs significantly from your perceived tolerance if you have never lived through a large drawdown. Size accordingly.
Watch out Signing the risk disclosures does not mean you have absorbed what a total loss feels like.
In the wild
Gurley traces the pattern from Microsoft investing in OpenAI while OpenAI agreed to buy services from Microsoft, through Nvidia extending money to counterparties and separately agreeing to buy their spare capacity. He cites Dario Amodei's on-stage explanation at DealBook, that Amazon wanted them to spend money they did not have so gave them more money, as illustrating rather than defusing the problem. Even firms convinced the wave is real are financing it in ways that would fail a clean-accounting test.
→ The presence of a genuine technology wave did not prevent the largest, most sophisticated players from adopting speculative-cycle financing behaviour.
Gurley describes a proliferation of special purpose vehicles: one-off funds letting retail participants buy into a single private company, with the promoter taking a rake. Some promoters, he says, are marketing SPVs for stock they do not actually hold and merely hope to obtain. Buyers typically lack the angel investor's lived experience of watching most of a portfolio go to zero, sign the risk acknowledgements without internalising them, and are then hit hard both financially and psychologically.
→ A textbook interloper layer: intermediaries harvesting a real wave's excitement while transferring the tail risk to the least prepared holders.
Common mistakes
Hearing bubble as disbelief in the tech
The gotcha framing makes the two claims mutually exclusive when the model says they co-occur, which stops people from managing exposure while the thesis is still correct.
Extrapolating early-vintage returns
The hundred-times outcomes were earned before the wave was consensus. Applying those odds to today's entry price systematically overstates expected value.
Trusting private financials like public ones
Information transparency in private companies is low and disclosure is loose. A public-market mindset that assumes audited, correct numbers is badly mismatched.
Is it for you?
Best for
Investors and operators trying to size exposure during a loud, fast-moving technology cycle.
Not ideal for
Precise market timing, since the model tells you what conditions exist but not when they resolve.
From the transcript
“every time there's been a technology wave that leads to wealth creation, especially fast wealth creation, that will inherently invite speculators, carpet baggers, interlopers that…”
“If the wave is real, then you're going to have bubble-like behavior. like they come together as a pair”
“your actual risk tolerance may differ probably does differ significantly from your your perceived risk tolerance if you haven't had a huge draw down”
From the episode
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