Got a question about why I think we're in a bubble. Thoughts below.

Well, let's look at it two ways: 1) Behavioral Finance (how people think, behave, and what they expect) and 2) Standard Finance (debt levels, index valuations, and stock-specific expectations).

Behavioral Finance

It's clear that expectations among retail investors are high. Few are satisfied with the historical annual 6–9% total return seen from SPY over the past 50–100 years.

You don't have to look at many forums to see that 15% and above is what the new retail wave expects (those who started in 2020 and have seen their stock portfolio almost double in a matter of 4–6 years). Leverage has been cheap throughout that period with few consequences.

We are now seeing the extreme sides of this with Korean investors entering the market with levered portfolios, but the trend over the past 5 years has been that expectations among retail have gone up, and the willingness to pay above fair value is historic (which is why Buffett said recently that he has never seen this much gambling in the market).

One way to "validate" this is the IPO boom (note that IPOs only happen when the sellers expect to get a good bargain on their shares), most notably seen with SpaceX where they practically bought advertisement on all major investment platforms to guide retail to invest. If you forget about valuation here, just think common sense (as Li Lu said, it's the rarest gift) — you don't do that unless you want to push the price and hope as many retail investors as possible join the craziness. The stock market is a market of buyers and sellers, and it's all about pushing the price up for the next seller.

Lastly, the clearest sign of a bubble in terms of behavioral investing is how quick people are to rotate whenever there's bad news, causing the stock to drop double digits. Very few people have built confidence by actually understanding the firms, so they use stop-loss, trailing stop-loss, and other mechanisms to attempt to secure gains, only to jump back into the stock when it has rebounded from the correction. What the fundamentals are doesn't matter for many stocks.

Standard Finance

I'll keep this shorter, simply because it's so obvious (see pic below). Debt levels are sky-high, valuations for indexes across the board are high, and boring firms with stable economics that actually produce free cash flow are not wanted by most investors (except when rotation happens, like the past 3–5 days).

The best way to understand if we are in a bubble is to use debt + money flow + do reverse DCFs to see what people are expecting firms to produce in free cash flow over the next 5–10 years. Some firms can absolutely be cheap now even though their P/E is high, but many firms are simply low quality, unable to compete, and have very little chance of achieving the free cash flow growth that the market is pricing in.

Major bubble? Idk. AI is here to stay. Enterprise Agents will rule the world over the next 5 years, and it will all be about token spending and getting ROI on agentic AI. Tons of firms will be disrupted, but that does not mean history is different this time. It was the same in 2000 when we moved from on-prem to cloud.

The best firms have been, and will always be, those that don't attempt to do major transformations on the fly without a clear plan, but rather those with the financial, strategic, and operational discipline to allocate capital to the best projects with the highest return — doing this by incrementally testing and failing. Industry-wide adoption is my take, and at the moment, people are forgetting the Lindy Effect when it comes to quality stocks.

Just my 2 cents.