While it is true that we (techies, rationalists, etc.) have the opportunity to catch a gold rush by becoming early adopterst, I suspect survivorship bias is at play. There are plenty of people who try to systematically 'grind' on such opportunitities but it doesn't pan out for many of them - I know some people who used to mass-register domains, and made a neglible profit in the end, people who jump on all sorts of altcoins, programmers who join a promising startup, where they sacrifice salary for equity, etc. Additionally, I also started messing with bitcoins in 2011, and while it has been quite profitable, I have made less than six figures, since I wasn't very serious about it at the time. And yes, in retrospect I can say that I should've put more money in (and kept them in bitcoin), but if I follow the same line of reasoning with all the seemingly-promising things I see, I might very well go broke.
I wish I was already an experienced gold rush spotter, so I could explain how best to do it, but as indicated above, I participated in the ones that I did more or less by luck.
Indeed, luck seems to be a big part of it, and the main action that you can take to facilitate the process is probably to put yourself in the right circles, so you can hear and look into innovations early on. This, however, is something that you and many people on here already do, and I doubt that you can easily find another intervention that will have as big of an impact on your chances to participate in a gold rush.
if I follow the same line of reasoning with all the seemingly-promising things I see, I might very well go broke.
Nobody has come up with another example of something that meets my definition of a tech gold rush, so these things don't seem to happen very often. I suggest keeping an eye out for them, but set your standard of "seemingly-promising" high enough so that it's triggered only rarely.
Another useful tip may be to look for entirely new asset classes, rather than something similar to the last big thing (altcoins or startups). Before domain names and Bitcoin, who thought that entries in a lookup table or a decentralized currency could be an investment asset?
In other words, the efficient market hypothesis. There is no way to beat the market.
EMH is the reason I didn't bother looking. All my money is in index funds, I told my parents to put all their money in index funds, etc. But after stumbling into assets with returns in the 100x-1000x range (or 100% to 500% annualized), twice, it seems time to update a bit.
EMH is over generalization; markets aren't magical machines that react instantly. Someone notices an opportunity first, and receives nearly all of the benefit. Those 1% are finding gold rushes and making tons of money. The 99% who follow are living off scraps.
The advice you were following comes from a reasonable observation: assume you are drawn randomly from that set, do you find it more likely that you are in the 1% or the 99%? But that totally ignores the fact that there are people beating the market, and indeed there has to be (for every loser there's a winner).
So how do you beat the market? Assume you the smartest, most bad-ass person on Earth. Don't trust what other people tell you is a good opportunity, because (a) they are stupid, and (b) if they are not then by the time you heard about it it's already too late. Look around yourself, do some original calculations (weak inside view), make your own decision, and follow through.
Someone notices an opportunity first, and receives nearly all of the benefit.
It doesn't follow that they made a correct decision, that given the knowledge available to them they should've expected to benefit. Even if they did expect to benefit and did benefit.
But that totally ignores the fact that there are people beating the market, and indeed there has to be (for every loser there's a winner).
The relevant thing is if you can make yourself more of a winner than the market, not if there are some winners. Lotteries have winners, but you can't decide to win a lottery.
They don't receive "nearly all of the benefit", they are just doing a bit better than the market consistently. This feels like a motte-and-bailey argument, with the motte being the examples of Buffett etc. who in a certain sense seem to be beating the market, but not dramatically, and the bailey being the claim that one can win much more than the market by noticing opportunities early.
(I mentioned lottery as an illustration for the importance of being able to affect the outcome, that mere existence of people beating the market is insufficient. Whether it's possible to affect the outcome is a separate question that you are now addressing.)
Winning the lottery on your first try, or just frequenting a website that managed to pick a lottery winner on its first try (analogous to how Bitcoin was pretty much the only investment opportunity to be discussed on LW aside from the standard "buy index funds"), is certainly Bayesian evidence for your being able to win the lottery on average. It's just that the prior for it is so low that you don't think it's likely even after updating.
This isn't the case for EMH, given that even economists disagree among themselves about whether EMH is true, or which form of EMH is true.
On second thought, I'm not sure this is true even in the lottery case. Would you really not buy a ticket if the website that previously picked a lottery winner announced a second prediction?
Goldman Sachs is not lucky to be profitable year-after-year. But you are not Goldman Sachs. They have hard-to-reproduce advantages ("moats") in terms of social and organisation capital, client and peer relationships, political access, intellectual property, etc, etc. And Goldman Sachs can't just effortlessly expand - they can't just decide "Right, let's make more money, let's find new arbitrages." They are at the scale and profitability they are for a reason. And even Goldman Sachs was lucky, to get to its current position. When Goldman Sachs was founded, the odds were against it becoming what it is today. If you found an investment bank today, you are unlikely to be as successful as Goldman Sachs.
Or, to put it in more down-to-earth terms: giving up on your education to become a professional footballer is a bad move for almost everyone, and a very risky move even for the highly talented. This is in no way negated by the fact that Zlatan Ibrahimovic earns millions every single year.
I thought about it for a while and wound up concluding that the Bitcoin thing probably happened because there was a barrier to entry that kept out the majority of people. Back in 2010 or 2011, you had to send cash to places like Dwolla to actually get BTC. It sounds stupid, but I suspect that if you had been able to (e.g.) invest in a Bitcoin ETF back then, Bitcoin would have appreciated in price fast enough that it would have been hard to get in on the rush.*
So the lesson I'm taking away from that one is to beware of trivial inconveniences.
*Of course, this presumes that the "rush" is over, but at least it's a lot harder for me to be sure that buying Bitcoin is +EV at $500 than at $1.
So the lesson I'm taking away from that one is to beware of trivial inconveniences.
I thought the lesson was look for trivial inconveniences as indicative of potential opportunities.
Sure, you can look at it that way. From my perspective, I think the lower-hanging fruit is to make sure that when I have a good idea and I don't do it because of a trivial inconvenience, I notice and do it anyway.
It's weird to think that there are assets available, right now, which are dirt cheap but will be extremely valuable in 5 or 10 years.
Anyway, I've given this issue a decent amount of thought since it's reasonable to expect that advances in AI will cause a lot of economic disruption and there is a decent chance that people fortunate enough to be invested in the right assets will end up very well off. What will be scarce but desirable in a post-AI world? Land? Rare art? Taxi medallions?
The main idea I have had is to save money by investing in an index fund on the theory that it gives you a pretty good chances of hitting one or more companies that would benefit tremendously from advances in AI.
Would you purchase weidai.com for six figure if it were for sale today? Is having the same domain on a continuous basis extremely important to you? If not you might be suffering from status quo bias.
If not you might be suffering from status quo bias.
Yep, that has occurred to me. Here are my excuses for not doing anything about it. (And yes, I'm aware that these could just be rationalizations for my bias. :)
It would take a lot of time to inform everyone and change my registrations on various shopping sites, etc., and I'll probably still lose a bunch of emails.
If they're willing to pay $100k, they're willing to forward emails for a few years.
Lots of links to my site from other sites, which I can't change easily or at all.
Linkrot is high enough on the Internet that in a few years, all the damage will be repaired. You also have few enough pages you may be able to arrange redirects for individual pages. (I've read through everything on the site - it's not that big.)
weidai.com has historically produced very high returns.
No, having a site has historically produced very high returns. Not having the exact domain name. (Unless you mean something like 'I made a fortune off someone who told me they randomly typed in the exact domain name 'weidai.com' and decided to name me in their will'.)
I do have an emotional attachment to the domain now that I've owned it for so many years
Can't argue with this one. On the other hand, I'd be thrilled to sell gwern.net for $100k; money makes an excellent salve for hurt feelings.
...If it is a bias, overcoming it takes effort, which might be more p
I registered the domain for <$10, last year it was worth $50,000, and now it's worth $100k.
Oh, you meant the domain name itself as an asset, not the use you were getting out of it. Yes, I suppose it has on paper, but past performance is no guarantee of future returns. There's no reason to hang onto it. (How much do you know about domain names? Will additional TLD releases by ICANN reduce the value of weidai.com? Or is the reason it's worth $100k time-sensitive in any way? It seems like a boring domain name, why is it worth $100k anyway?)
The effect of selling it is just to increase the diversification of my investment portfolio (i.e., I would no longer have a substantial chunk of my investments in a single asset), which is a good thing since I'm risk averse, but that benefit is certainly not worth $100k.
You're taking on a huge amount of uncompensated risk here. Would you put $100k into a single stock? For example, buy a single share of BRK.A? No, of course not, even if that got you exposure to 'insurance' or 'railroads'.
Domain names are a different asset class from everything else I own, so ideally I ought to have some exposure to it.
Unless you're orders of magnitude wealthier than I think you are, your exposure to an opaque illiquid minor hard-to-price asset like domain names should look more like $10 than $100,000.
To expand on this, there are several thousand commonly used Chinese characters, each with different meanings. These map onto about 400 possible syllables (ignoring tone). However not all combinations of two Chinese characters are valid Chinese words. My Chinese input software gives three possibilities when I type in "wei dai".
However new Chinese words are invented all the time, using combinations of existing Chinese characters. In this case I believe the highest bidders of my domain actually want to use it for 微贷, which means microloan.
$100,000 is a very small amount of money for smart people in finance, certainly not something they would spend a lot of time trying to get. It's certainly possible that if you are very smart, have a bit of specialized information on some topic, have smart associates willing to give you advice, and are willing to devote, say, 100 hours you could find a $100k bill on the ground.
I think you make a good point, however I'm really looking for >$1 million bills on the ground. The examples I gave in the post weren't primarily meant to be examples of success at picking up $100k bills on the ground, but rather examples of opportunities for >$1 million missed because I wasn't paying attention. For example, when I was registering for weidai.com, why didn't I stop to think, "the Internet will surely be big in China eventually, so let me just register all the available two syllable pinyin domain names while I'm at this"?
I looked at the Bitcoin whitepaper, thought "this is new math", and put some spare cash on it. Unfortunately spare cash at the time was close to zero because I was living paycheck to paycheck on close to minimum wage. Oh well.
Well, the good gold rushes are rare.
I think it's worth pointing out that the Bitcoin gold rush is probably far from over. It's by no means certain to continue, of course, but I think there are reasons to question how strongly the Efficient Market Hypothesis applies. In particular, the current regulatory murkiness that makes it difficult for institutional money to get involved, but there are others as well.
It's an uphill battle for an individual to catch on to these advances. I try to focus on two strategies, one of which you've mentioned which is to just "be aware" by reading, following twitter feeds etc. awareness of whats out there is a starting block. once you become aware of something you need to evaluate its potential for success. Ex. read an article on Bitcoin in 2010, is Bitcoin something that will be valuable going forward? Institutions can manipulate value through repression, over-buying, over-selling etc. Individuals can increase their o...
Nobody makes money off gold in a gold rush. Those who make money from the strike already found their gold before it was a gold rush.
If you want to predict a gold rush, use the weak inside view to predict where opportunities will be, and move on those where no one else is.
Nobody makes money off gold in a gold rush. Those who make money from the strike already found their gold before it was a gold rush.
Are you talking about literal gold rush, or tech gold rush? With domain names, I registered my domains at almost the exact peak of the dot com bubble, when surely the domain name rush was well underway. With Bitcoin, I started only after it was so well known that it was being discussed on a barely related site, Less Wrong.
Depends how you think your expertise compares to that of the various venture capital and investment firms trying to do the same thing.
If other states follow Colorado's lead and legalize marijuana, there could be opportunities related to that. Not very 'techie' though.
Doubt it. I've heard rumors -- and I would be very surprised if this turned out not to be true -- that tobacco companies are prepared to fill the market the instant marijuana is legalized.
(But have tobacco companies moved into the medical marijuana market? Outright legalization seems less near-future likely than expansion of medical.)
Virtual reality is the next gold rush, but I haven't quite figured out how to capitalize on it yet. It's like being told in the early 90's that the internet will be huge. How would you capitalize on that? Buy some domain names? Start a web directory? Start an online bookstore? Start a payment processor?
Selling picks and shovels, it is said, is a safe way to strike it rich in a gold rush.
I think almost anything you could do to get into Virtual Reality will pay immense dividends ten years from now, if not sooner.
One phenomenon that has some of the relevant characteristics of these tech gold rushes is the online Poker (and popular poker) scene of 5-10 years ago, in that in made a few nerds unusually wealthy. The level of earnings/(work x skill) was much lower in poker, though, in that it was not clearly that much higher than for things like finance.
Namecoin is an attempt to use a blockchain to implement a decentralized DNS. (It also has an associated cryptocurrency, but that's not the important part.) I know someone who is doing some domain squatting on this. I don't think it's particularly likely to take over the current DNS, but names are only a few cents.
In early 2000, I registered my personal domain name weidai.com, along with a couple others, because I was worried that the small (sole-proprietor) ISP I was using would go out of business one day and break all the links on the web to the articles and software that I had published on my "home page" under its domain. Several years ago I started getting offers, asking me to sell the domain, and now they're coming in almost every day. A couple of days ago I saw the first six figure offer ($100,000).
In early 2009, someone named Satoshi Nakamoto emailed me personally with an announcement that he had published version 0.1 of Bitcoin. I didn't pay much attention at the time (I was more interested in Less Wrong than Cypherpunks at that point), but then in early 2011 I saw a LW article about Bitcoin, which prompted me to start mining it. I wrote at the time, "thanks to the discussion you started, I bought a Radeon 5870 and started mining myself, since it looks likely that I can at least break even on the cost of the card." That approximately $200 investment (plus maybe another $100 in electricity) is also worth around six figures today.
Clearly, technological advances can sometimes create gold rush-like situations (i.e., first-come-first-serve opportunities to make truly extraordinary returns with minimal effort or qualifications). And it's possible to stumble into them without even trying. Which makes me think, maybe we should be trying? I mean, if only I had been looking for possible gold rushes, I could have registered a hundred domain names optimized for potential future value, rather than the few that I happened to personally need. Or I could have started mining Bitcoins a couple of years earlier and be a thousand times richer.
I wish I was already an experienced gold rush spotter, so I could explain how best to do it, but as indicated above, I participated in the ones that I did more or less by luck. Perhaps the first step is just to keep one's eyes open, and to keep in mind that tech-related gold rushes do happen from time to time and they are not impossibly difficult to find. What other ideas do people have? Are there other past examples of tech gold rushes besides the two that I mentioned? What might be some promising fields to look for them in the future?