There's a famous post on the iconic wall street bets community on Reddit (see below). The strong claim is that the market has already assimilated all the information and set the “correct” price. But the existence of bubbles implies the market is overwhelmingly wrong about the underlying reality.
The market is indeed one of humanity's best tools at surfacing information and setting prices. It's right most of the time.
But it can be "wrong" due to widespread misinformation, lags, outright scams, inaccurate descriptions of underlying reality, overenthusiastic forecasting or biases against the new etc.
Outsized returns are often obtained by participant/ investors who can "correct" the market. This leads to a search for secrets or contrarian takes. Take startup investing. An early stage startup has mostly 0 value in the wider market because of an almost 100% likelihood of dying
Investors who bet on these have to write off almost their entire portfolios. Yet they make life changing amounts of money by only being right once (or a few times) against the market consensus.
This is an underappreciated cause of tech bubbles. Every few years, investors overestimate the rate of progress in a technology due to impressive tech demos and early adoption.
It often makes perfect sense to disregard common sense and even reasonable models of the past since being against them can be so lucrative. Plus tech has extremely varied rates of improvements (see technologyrates.mit.edu), so past is genuinely not a good guide.
In theory this is fine since a single amazon makes up for hundreds of pets.com. In practice, FOMO, peer pressure makes contrarian bets widespread, driving up their price. Amazon in 1998 is the right bet in the long run but it can't get you out of the hole now.
Over-leveraged investors then distort the market in the other direction. Distressed sales leading to underpricing.
We are currently working on studying the rates of progress across a number of important tech areas to identify real long term technological opportunities and their impact vs. temporary bubbles. Stay tuned for more on this from @TechnextInc.
In most situations the market is indeed right and most investors will be better served by index funds etc. but it's good to be cautious during obvious bubbles. Buffet's golden rule is helpful, "Be fearful when others are greedy and be greedy when others are fearful".
