# Look for the Next Tech Gold Rush?

34 19 July 2014 10:08AM

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? ## Comments (113) Sort By: Best Comment author: 19 July 2014 03:25:19PM 10 points [-] 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. Comment author: 21 July 2014 10:22:32AM 1 point [-] Advances in technology seem to increase urbanization, so if you're betting on the former you should bet on the latter. Everyone already seems to think land around bigger cities is a good bet. But there are other aspects of increased urbanization that seem fairly predictable and entail specific increases in economic value. Car rental companies, for one. With self-driving technology, people will get a lot less attached to their cars, and car rental / taxi companies will pick up the shift in transportation demand. (I suspect the shift will be most dramatic in caravans / mobile homes. Mobile hotel rooms. They take you to all the sights in the area, let you pre-order your choice of menu at the next restaurant they'll drop you at, and pick a perfect sunset stop every evening. The elderly will love it.) But that business is easy for competitors to enter, so I'm not sure if being there early is a big advantage. Comment author: 21 July 2014 11:03:41PM * 1 point [-] Advances in technology seem to increase urbanization, so if you're betting on the former you should bet on the latter. Yes, that thought occurred to me as well. Especially since improvements in crime-fighting technology (DNA testing, surveillance cameras) are making it a lot safer to live in the big city. On the other hand, perhaps in the future it will be really easy to live your life without leaving your house. In that case, one can imagine that the cities will empty out and people will choose to live on big plots of land in the middle of nowhere. It's just really hard to predict these things. Car rental companies, for one. With self-driving technology, people will get a lot less attached to their cars, and car rental / taxi companies will pick up the shift in transportation demand. Yes, that's another likely possibility. On the other hand, cars themselves have been getting cheaper and cheaper so people might still choose to have their own. That's the thing about these predictions -- there's always an "on the other hand." So one can argue that prudent thing to do is to diversify. e.g. invest in a real estate trust which buys urban land; suburban land; rural land; farmland; etc. Comment author: 22 July 2014 07:35:03AM 1 point [-] one can imagine that the cities will empty out and people will choose to live on big plots of land in the middle of nowhere That was predicted decades ago, when telecommuting was hyped, and the opposite happened. cars themselves have been getting cheaper and cheaper True. I imagine that this too should decrease people's (often very strong) emotional attachment to their car, though. But who knows? Comment author: 22 July 2014 04:46:27PM * 1 point [-] That was predicted decades ago, when telecommuting was hyped, and the opposite happened. Yes, I agree with this. But a lot of trends stop and then reverse themselves. ETA: Upon further reflection, my best guess is that this trend will continue. Because people crave status; even in a society of plenty there is a limited amount of status; and it's high status live in or near an important city. Comment author: 23 July 2014 07:05:43AM 1 point [-] Also, people want to be near their friends, and the easiest way to be close to a lot of people is to live in a big city. I would actually expect that communications technologies accelerate the urbanization process, since it makes it easier to make geographically distant friends online, and then you become more likely to want to move to where they live. Comment author: 24 July 2014 01:29:04AM 0 points [-] what is status in a world thats moved out of the age of scarcity that humans have been in since existence? I really don't think there will be any kind of status except maybe politics. How can you be certain that in a society of plenty "there is a limited amount of status"? No society has ever been there before. To your first point, I agree. Comparing the past to the future, saying well we weren't right about telecommunting's consequences so we definitely cant now be correct about a different technologies consequences is silly. Comment author: 24 July 2014 10:17:18AM 1 point [-] what is status in a world thats moved out of the age of scarcity that humans have been in since existence? Hanging out with the cool kids; summering in the Hamptons; having a balcony on Central Park West; having courtside seats at Knicks games; sending your children to Harvard, just to name a few things. All of these things are scarce and are likely to remain so no matter how wealthy the world gets. Comment author: 19 July 2014 11:09:16PM * 9 points [-] 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. Comment author: 20 July 2014 12:52:19AM 15 points [-] 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. Comment author: 20 July 2014 01:29:08AM 4 points [-] 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. Comment author: 20 July 2014 12:34:50PM 4 points [-] it's a lot harder for me to be sure that buying Bitcoin is +EV at$500 than at $1. Serious question: how much analysis went into that? I can come up with cases where the price goes down (massive regulations / bans result in no one using it), and cases where it goes a lot higher, but I'm having trouble coming up with scenarios where the price holds roughly steady (say, between$100 and $3000). Comment author: [deleted] 05 November 2015 10:29:01AM 0 points [-] For those political connectors LWers, what could governments do to promote uptake of decentralised currencies that wouldn't have immediate negative externalities? Comment author: 05 November 2015 12:29:30PM 0 points [-] Why would governments want to promote uptake of decentralized currencies in the first place? Western countries have no interest in Bitcoin directly. There is an interest to prevent fake medical drugs from being sold. I could imagine laws that force every sold drug to have a verifiable chain of ownership from the factory that produces the drug to the pharmacy that sells it. A chain that's backed up by the blockchain. In developing countries it can be useful to be able to verify how money travels through the system. Stellar and Ripple provide technologies that enable that. I can imagine a government deciding to pay every of it's employees via Stellar to prevent a boss from taking part of the paycheck from his underlings. Taking tax payments via the Stellar network would further make it the default system. A government cares about a bunch of long-term predictions about how it's economy is going. It might be worth for creating subventioned prediction markets in Augur for climate changes 10 years from now or for various economic forecasts for which it's good to have reliable data. Subventioned prediction markets might work better than paying government burocrats to do forecasts in many cases. Comment author: [deleted] 20 July 2014 02:52:40PM 0 points [-] Here's one: it doesn't become a commonly use currency or investment mechanism, but rather merely a fee currency for some other construct like usdcoin. Comment author: 20 July 2014 06:19:21PM 1 point [-] If usdcoin (the digital construct) is successful at the expense of bitcoin, why would bitcoin be used at all? My "bitcoin value collapses" scenario list includes the cryptocurrency space being won by an altcoin. I should probably give some more analysis to the specific altcoin of "something pegged to fiat, with government backing". But if that coin succeeds, won't it be the fee currency? Why would btc coexist in a meaningful but not dominant position? (I can see BTC coexisting with USD and EUR if you can't pay taxes in BTC, but if BTC succeeds in that scenario, I think there's still lots of headroom for the price.) Comment author: [deleted] 21 July 2014 04:38:33AM 1 point [-] Lack of counter-party risk. There are a variety of mostly technical reasons why it is desireable that fees be paid in a peer-to-peer issued currency vs a central-party issued currency. For example, if there are multiple competing currencies in use (e.g. usdcoin and eurocoin, or more likely bitstampusd vs bitreserveusd), then a p2p currency like bitcoin provides a neutral platform for setting fee policy. Comment author: 20 July 2014 10:07:34PM 3 points [-] So the lesson I'm taking away from that one is to beware of trivial inconveniences. Yeah, I knew about Bitcoin in 2010, thought to myself "I really ought to put$1k into that in case it explodes," and didn't because of the inconvenience. Oops.

Comment author: 20 July 2014 07:15:54PM 6 points [-]

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.

Comment author: 20 July 2014 07:58:31PM 10 points [-]

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. :)

1. My main email addresses are on weidai.com. 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.
2. Lots of links to my site from other sites, which I can't change easily or at all. This wouldn't be the case if I was considering buying weidai.com today.
3. weidai.com has historically produced very high returns. Selling it and putting the money into index funds might still be an improvement from a portfolio theory perspective, but I don't think the benefits are that high (given that I already have an otherwise well-diversified investment portfolio).
4. I do have an emotional attachment to the domain now that I've owned it for so many years, so holding onto it could be considered a real preference, not just a bias.
5. If it is a bias, overcoming it takes effort, which might be more productively directed towards other goals, like writing a LW post about looking for the next tech gold rush, or thinking about meta-philosophy.
Comment author: 21 July 2014 12:31:51AM 8 points [-]

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 productively directed towards other goals, like writing a LW post about looking for the next tech gold rush

How long does it take to sell a domain name and set up shop on weidai.net or whatever? Let's say 3 or 4 weeks of nonstop work. You really think you are currently producing ~$100k of value with your current lifestyle and work patterns each 4 weeks in which you ignore selling the domain? Comment author: 21 July 2014 01:04:03AM 2 points [-] No, having a site has historically produced very high returns. Not having the exact domain name. Huh? I registered the domain for <$10, last year it was worth $50,000, and now it's worth$100k. How is that not "historically produced very high returns" just from having the exact domain name? Are you thinking of "return" as including just income and not appreciation?

You really think you are currently producing ~$100k of value with your current lifestyle and work patterns each 4 weeks in which you ignore selling the domain? By not selling the domain, I still own it, and it's still worth$100k. 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. (Actually, thinking about it more, I'm not sure that selling the domain is actually good for diversification. Domain names are a different asset class from everything else I own, so ideally I ought to have some exposure to it.) Comment author: 21 July 2014 01:12:48AM * 7 points [-] 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.

Comment author: 21 July 2014 10:50:22AM 2 points [-]

past performance is no guarantee of future returns

Technically, past performance is Bayesian information about future returns, which in an efficient market is already reflected in asset prices. The domain name market is not an efficient one though, given that I'm the only person who can even see the history of bids on weidai.com. But my main point was just that the domain produces returns like any other asset, so the financial cost of holding onto it can't be the whole $100k, which is what you were assuming. I don't know what the actual cost is. My intuitive estimate is that it's about$10k, which does not make it worthwhile for me to sell. I don't know how to do a more exact calculation. Do you?

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.

"opaque illiquid minor hard-to-price" are arguments against trading in the asset, either buying or selling, since these attributes tend to increase transaction costs. I don't see how they are arguments for keeping my holdings in the asset class to a low level, if I started off holding a big position.

Comment author: 21 July 2014 02:53:49PM *  3 points [-]

The domain name market is not an efficient one though, given that I'm the only person who can even see the history of bids on weidai.com.

It may not be particularly efficient, although it's grown up a lot since the '90s. But being inefficient is not helpful for you, since you are not an expert on domain names and have no edge. As far as you are concerned, the domain name market is efficient. As I said: do you know how serious the offers are? Do you know why exactly weidai.com may be worth $100k? Do you know whether it's likely to continue increasing and what the limit is ($200k? $1m?$5m?) for it? Do you know whether additional TLDs would affect it (wei.dai would be a nice domain...) or whether the use for weidai.com would be affected by any increases in adoptions of Unicode or punycode domain names? If you don't know any of this, how on earth can you sit by and leave up to $100k of your money in such an asset? Such complacency baffles me. My intuitive estimate is that it's about$10k, which does not make it worthwhile for me to sell. I don't know how to do a more exact calculation. Do you?

No, but my intuition (as a person with no sentimental attachment to the domain and not seeking excuses to not sell) is that the risk and opportunity cost are much larger than $10k. You have a bird in the hand, which you've never sold, don't know why it's valuable, and can easily replace. I would fling that away from myself like it was 2000 and I was holding$100k of Pets.com stock.

"opaque illiquid minor hard-to-price" are arguments against trading in the asset, either buying or selling, since these attributes tend to increase transaction costs. I don't see how they are arguments for keeping my holdings in the asset class to a low level, if I started off holding a big position.

All those attributes make it a very volatile and risky asset to hold, so by regular portfolio theory, you should be holding very little of that asset and in particular, should be rebalancing away from it now that it's recently doubled.

Comment author: 21 July 2014 09:15:14PM 4 points [-]

Such complacency baffles me.

Part of it, which perhaps you and most other observers are not aware, is that I have enough passive income, and enough dispassion for conventional status signaling, that my marginal utility of money is pretty low compared to my disutility for doing busywork. To put it in perspective, I quit my last regular job in 2002, and stopped doing consulting for that company as well (at $100/hour) a year later when they merged with Microsoft and told me I had to do a bunch of paperwork and be hired by Microsoft's "independent consulting company" in order to continue. The reason for writing this post was that there seems to be opportunities "out there" for earning up to hundreds of millions of dollars (like the opportunity to mine Bitcoin at version 0.1 that I narrowly missed) while doing very little work. In comparison, doing busywork for a month to earn some unknown amount of money between$0 and $100k is not particularly motivating to me at this point. Comment author: [deleted] 22 July 2014 07:03:17PM 1 point [-] You could probably spend a fraction of the$100k to hire someone to do all the busywork for you, couldn't you?

Comment author: [deleted] 22 July 2014 07:10:26PM 0 points [-]

As I said: do you know how serious the offers are? Do you know why exactly weidai.com may be worth $100k? I'm not sure what someone who wants to buy a domain name named after its current owner is thinking of doing with it, but I think there's a non-negligible chance it'd turn out to be something the namesake of the domain name wouldn't like at all. Comment author: 24 July 2014 07:13:52PM 2 points [-] 'Wei Dai' is not that rare a name; there could easily be some Chinese businessmen or something who want the name for branding purposes. Comment author: 23 July 2014 04:11:08PM 2 points [-] I'd be somewhat worried about this if I were selling jefftk.com or something, but "wei" and "dai" without tones could mean many things. I don't remember much of my Chinese, but looking at a dictionary I see: wei: place, seat, not, because, become, tiny, tail, yes, taste dai: doctor, belt, dynasty, stay, wait, going to, bag, wear, dangerous, lazy  Now, not all of these combinations will mean what they look like they might mean, but there are a lot of reasonable things "wei dai" could mean aside from a person's name. (It also looks like "wei dai" can mean "grave danger".) Comment author: 25 July 2014 04:23:14AM 5 points [-] 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". • 未带: not bring • 微带: microstrip • 危殆: grave danger 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. Comment author: [deleted] 21 July 2014 01:54:00PM 2 points [-] But my main point was just that the domain produces returns like any other asset, so the financial cost of holding onto it can't be the whole$100k, which is what you were assuming.

$100k is the opportunity cost, which is very real. You could be right now re-investing that$100k in some other venture.

Comment author: 21 July 2014 10:53:31PM 3 points [-]

I think you may have misunderstood what I was saying. Gwern had asked me, "You really think you are currently producing ~$100k of value with your current lifestyle and work patterns each 4 weeks in which you ignore selling the domain?" And I was trying to point out that by doing 4 weeks of work, I'm not earning$100k, but rather earning the difference in future returns between holding weidai.com and holding some other asset, presumably an index fund, and this difference has to be worth less than 100k in current value unless there's 100% chance that weidai.com becomes worthless.

Comment author: 21 July 2014 03:13:21PM *  -1 points [-]

I just want to point out that you did start this thread to get decent financial advice, and in my opinion you are getting one now.

Comment author: 23 July 2014 07:27:59AM *  0 points [-]

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.

~~Edit: went looking for the comment I remembered reading and didn't find it, but I did find this comment where you mention advising someone else to diversify out of bitcoins. So that makes me think either a) I misremembered what you said, b) you advised others to diversify, but stayed heavily invested yourself, or c) you had made the claims I remembered, but diversified shortly thereafter.~~ [doesn't double-tilde do strikethrough?]

Edit2: Found it.

Comment author: 24 July 2014 07:21:06PM 2 points [-]

I have been periodically cashing out small quantities, since you're right, I'm not comfortable having so much of my net worth in bitcoins. It's not going very fast, though, since if I sell it all it'll cause tax problems and I don't understand taxation at all. (I'm not sure how much I can funnel through Coinbase before I trip various requirements.)

At least all the institutional interest seems to have tamped down on the volatility lately!

Comment author: 25 July 2014 05:52:03PM 3 points [-]

I don't understand taxation at all.

Do you have questions that are not answered here? My understanding is that you just pay capital gains. That's what I did, and the IRS seemed to be happy with my tax return.

Comment author: 20 July 2014 08:48:15PM 1 point [-]

You've convinced me :)

Comment author: 19 July 2014 10:54:37AM *  15 points [-]

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.

Comment author: 19 July 2014 09:07:24PM 6 points [-]

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?

Comment author: [deleted] 19 July 2014 10:59:47PM 3 points [-]

I would have thought you did, based on your research.

What information available in 2009 would have convinced you that bitcoin would become a billion-dollar market as quickly as it did?

Comment author: 23 July 2014 01:07:17AM 3 points [-]

I would have thought you did, based on your research.

No, my monetary policy views were firmly mainstream, which considers rapid unpredictable changes in prices, in either direction, to be a really bad thing for a currency. So I designed b-money to have a stable value relative to a basket of commodities, and until Bitcoin came along, never thought anyone might deliberately design a currency to have a fixed total supply.

Comment author: 19 July 2014 11:00:12AM 1 point [-]

In other words, the efficient market hypothesis. There is no way to beat the market.

Or even shorter: $\alpha = 0$

Comment author: 19 July 2014 08:28:14PM 15 points [-]

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.

Comment author: [deleted] 19 July 2014 10:56:47PM 11 points [-]

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.

Comment author: 19 July 2014 11:10:20PM *  7 points [-]

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.

Comment author: [deleted] 20 July 2014 12:16:19AM 1 point [-]

It does follow from repeatability -- Warren Buffet and Goldman Sachs are not explained by the lottery analogy.

Comment author: 20 July 2014 12:50:08AM *  13 points [-]

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.)

Comment author: 22 July 2014 06:32:54PM 2 points [-]

Berkshire and Goldman don't just buy-and-hold though; they are a large holding company that actively manages its largest investments and a premier financial services provider respectively.

Genius stock picks are only a part of the story. The more imitable part is finding a genuine business angle that earns the premium.

Comment author: [deleted] 23 July 2014 03:39:15PM 0 points [-]

I never said they buy-and-hold (although sometimes they do -- see Coca Cola and See's candy, for example). The fact that they actively manage their portfolio shows that they are able to pick winners. What they are doing is working.

Comment author: 20 July 2014 02:02:23PM 3 points [-]

It does follow from repeatability -- Warren Buffet and Goldman Sachs are not explained by the lottery analogy.

It doesn't follow from repeatability. Or rather it doesn't follow from the existence of examples of repeated success. A normal distribution of returns with repeated play will still lead us to expect at least one investor with Buffet's track record (if my econ. prof's math is to believed----I haven't have cause to look closely).

It would follow from "significantly more repeated success than a normal distribution would predict".

I do believe that Buffet's success is more than luck, just not that this particular argument follows.

Comment author: 21 July 2014 12:15:11AM 3 points [-]

A normal distribution of returns with repeated play will still lead us to expect at least one investor with Buffet's track record (if my econ. prof's math is to believed----I haven't have cause to look closely).

Buffett claimed at some point that they calculated he was a 3 sigma event, then a 4 sigma, then a 5 sigma, then stopped calculating because it was getting embarrassing.

Here is his contemporary, fuller argument.

Comment author: [deleted] 20 July 2014 02:50:46PM 1 point [-]

Buffet's track record is well beyond what chance would allow.

Comment author: 20 July 2014 11:23:06AM 4 points [-]

EMH says the market can be beaten with exceptional information. If anyone is exceptionally informed on cryptocurrencies (in 2011, and maybe 2014), it is certainly Wei Dai.

Comment author: 20 July 2014 01:39:44PM 1 point [-]

EMH says the market can be beaten with exceptional information.

To be more precise, weak-form and semi-strong-form efficiency can be beaten with exceptional information. Strong-form efficiency can not.

Comment author: [deleted] 05 November 2015 10:34:51AM 0 points [-]

Yeah, I think this thread gives a lot of false hope to regular people, haha. He's basically the grandfather of bitcoin. Is it a suprise he got rich of it?

Comment author: 23 July 2014 04:16:53PM 2 points [-]

after stumbling into assets with returns in the 100x-1000x range, twice, it seems time to update a bit.

How many assets have you purchased that didn't turn out to be valuable? A friend just looked up the price on a lego set that had been sitting in his room unopened since he was a kid (right after he opened it and built it...) and found that it was worth ~500x what it originally sold for. But most toys people buy and leave unopened are going to be nearly worthless a decade later.

Comment author: 19 July 2014 09:58:38PM 0 points [-]

Some people win the lottery on their first try. Some even win twice. Doesn't mean that you win on average or that there is a way of consistently winning.

Comment author: 20 July 2014 06:50:35PM *  3 points [-]

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?

Comment author: 20 July 2014 07:35:30PM 1 point [-]

You won the lottery twice. So is what you're saying I should now invest in all the stuff you are investing?

Comment author: 20 July 2014 08:30:48PM 1 point [-]

Well, no, it's more like, "I won the lottery twice (figuratively), last time with the help of Less Wrong. I'm not sure how to do it again, but if I encourage LWers to think in that direction, maybe they'll find and point out the next opportunity too."

Comment author: 21 July 2014 12:24:12AM 0 points [-]

Gold has also been discussed as an investment opportunity, as has high frequency trading. More broadly discussed have been things like "start a company that does (X)".

Comment author: [deleted] 19 July 2014 10:57:16PM -1 points [-]

I guess Goldman Sachs is just damn lucky?

Comment author: 21 July 2014 10:08:58AM 4 points [-]

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.

Comment author: [deleted] 21 July 2014 01:19:20PM 0 points [-]

"The odds were against them" doesn't mean they were lucky. It means they beat the odds. They made their own luck, as the saying goes. Frequentism doesn't apply here. They are picking winners, not pulling them randomly from an evenly distributed set.

Comment author: 19 July 2014 11:06:30AM *  2 points [-]

In other words, the efficient market hypothesis. There is no way to beat the market.

Yes, that is my line of reasoning and I was going to mention the emh, but after some introspection, I am not so sure if this collective pre-market [so to say] is actually very efficent due to the limited number of players among other things (although it might very well be, and I could argue that it should be).

Comment author: 19 July 2014 11:25:20AM 3 points [-]

Getting into deeper theory now. Is the EMH dependent on the number of participants? It most certainly is contingent on the flow of information. But even then, we see the EMH at play with regard to startups in the VC stage: After correcting for risk, they don't make any more money. I argue that these companies are in a pre-market stage.

Then again, my argument is not contingent on the efficiency of any one price. If you invested a little bit in everything that pops up in your inbox and after five years gives you a risk-adjusted return higher than the average market I'd be highly surprised. So I'd be willing to accept that there are plenty of inventions and products in the pre-market stage that are wrongly priced, but as a whole the price is very correct near zero.

Comment author: 20 July 2014 01:53:58AM 0 points [-]

We see the EMH at play with regard to startups in the VC stage: After correcting for risk, they don't make any more money.

What's your source for that? A quick google search turns up widely varying numbers.

Comment author: 20 July 2014 09:50:15AM *  0 points [-]

This is what I was thinking of, but it isn't exactly my claim.

Comment author: [deleted] 05 November 2015 10:33:07AM *  0 points [-]

I think you mean (and even shorter): $\φ = 1 Comment author: 21 July 2014 07:54:52PM 3 points [-] 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. Comment author: 19 July 2014 01:34:20PM 3 points [-] 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. Comment author: 20 July 2014 12:15:30PM * 0 points [-] The interesting bit is the one where the market failed to work: we now know the Mt Gox price was hideously corrupted (and the tape-painting was long visible right there in the blockchain), but the other exchanges closely tracked the bogus Mt Gox price. So look for an inefficient market as an opportunity. Comment author: 20 July 2014 12:24:02PM 2 points [-] I find it more surprising that the bogus price on Mt Gox was not fully tracked by other exchanges. I thought about trying to arbitrage that for a little while, before deciding that was a context where I basically trusted the EMH and took it as a signal to move out of Mt Gox. Comment author: 20 July 2014 02:05:50PM 1 point [-] Yeah, there was a certain spread for the difficulty already present at the time in getting one's money back out of Mt Gox. Comment author: [deleted] 20 July 2014 02:56:06PM 0 points [-] Bogus mtgox price? It was Chinese exchanges that were driving that runup, and mtgox following. Comment author: 20 July 2014 05:03:12PM 2 points [-] 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 odds through a form of higher-level thinking. Ex. relating a product to human values and attempting to place it on a futuristic timeline. Now, for an actionable example... 3D body imaging - lots of focus and investment around 3D printing to create concrete objects, however I am more excited with the scanning portion and the virtual representation possibilities of this technology. See Google's Tango project, or PrimeSense out of Israel. Now imagine the possibilities of having a 3D representation of your body and potentially the world around you. you could easily: Track your BMI and your physical features (athletics, vanity, health) Try on clothing virtually (fashion, performance) Use your own body for online gaming avatar Virtual dating The list goes on and on.. Why would the above be successful? Because it decreases the cost of being inaccurate. (time, money, morale) Now think about the value of the data to corporations that would exist from having information on everyones body size and type, the value would then compound the more they use the product to purchase new clothes, products, etc. $

Comment author: 21 July 2014 11:27:00PM 0 points [-]

But then the follow-on to this, supposing one thinks that 3d body imaging is going to be big -- which I think is not an unreasonable guess -- is, how does one buy financial exposure to this technology?

Comment author: 22 July 2014 12:22:02AM 0 points [-]

Research - come on, you dont expect me to do all the digging for you? when you want to invest, learn the industry both linearly and laterally.

What does it take to scan a body? what will all companies that do it need? who are the current industry leaders? what tech are they using? who makes it?

you could spend weeks/months researching to get the right answers.

Comment author: 22 July 2014 05:23:23AM *  2 points [-]

Sorry, in my head I somehow read the original post as "where are slots I can put money in to participate in a gold rush", where the actual text is clearly more broad than that.

EDIT: Although most often buying into a technology like this involves buying equity in companies, which is not normally a good way to get in on a high-velocity gold rush -- if you're a normal investor you can't buy into them until they go public, which is normally well-past the true "gold rush" stage. (This is less true if you're an accredited investor but it substitutes different problems.)

Things like bitcoin and domain names, the original examples, don't involve buying equities at all, but were other asset classes entirely, and so didn't have the same issue.

Comment author: 20 July 2014 12:30:58PM 2 points [-]

I woulda said "Urbit", but they appear to have unlaunched after first putting it out there.

Comment author: 21 July 2014 11:31:23PM 2 points [-]

I would love to hear more about what makes you think Urbit is valuable.

I looked at it quite a bit because it sounded extremely intriguing, but I eventually concluded that it seemed rather cranky and unlikely to get anywhere useful.

(Then again, this was my first thought about Mill, which I have now made a small investment in, so.)

Comment author: 22 July 2014 10:15:21AM 1 point [-]

I don't have any particular reason to think it's valuable. But it looks like an interesting toy ("intriguing", as you note), includes created scarcity and succeeded in getting itself a small amount of publicity. That strikes me as enough to be worth a small amount of attention.

Comment author: 22 July 2014 03:32:11AM 3 points [-]

$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.

Comment author: 22 July 2014 04:15:57AM *  9 points [-]

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"?

Comment author: [deleted] 19 July 2014 05:32:39PM 2 points [-]

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.

Comment author: 19 July 2014 07:59:26PM 6 points [-]

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.

Comment author: [deleted] 19 July 2014 10:29:13PM *  2 points [-]

I was talking about literal gold rushes. I find them quite fascinating and have read a few books on their history. Once the actual "gold rush" starts, very few miners coming from afar get rich. Those who do typically either (a) are supplying the miners, (b) innovate in some way, e.g. buying small stakes in many claims and reselling shares to speculators.

The people who make the most money are parasites and could have done that anywhere. The yields are just bigger in the gold rush ecosystem. The ones who actually struck it rich were the grizzled prospector types who happened to be in the right place at the right time.. but not because they were lucky. You make your own luck as the saying goes.

Comment author: 20 July 2014 11:47:14PM 2 points [-]

You make your own luck as the saying goes.

This brings to mind Ed Schieffelin, who struck silver in Arizona and correctly predicted there would be gold in Alaska (but didn't find enough to overcome the bitter cold, and so left).

Comment author: 22 July 2014 06:38:32PM 0 points [-]

To be fair, if your name were Jebediah Thorgunnsen, your domain name would not have appreciated so much.

Comment author: 20 July 2014 12:10:28PM 2 points [-]

The general principle is: In a gold rush, the money is in shovels. So look for services you can provide to a gold rush.

Comment author: [deleted] 20 July 2014 02:56:54PM 2 points [-]

That's missing the point. He's asking how you predict the gold rush in the first place.

Comment author: 20 July 2014 05:44:12PM -1 points [-]

True :-) OTOH, if anyone could answer that question reliably they'd be rich.

Comment author: 24 July 2014 06:59:48AM 1 point [-]

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.

Comment author: 20 July 2014 10:55:06AM 1 point [-]

Depends how you think your expertise compares to that of the various venture capital and investment firms trying to do the same thing.

Comment author: [deleted] 05 November 2015 10:30:52AM 0 points [-]

So...what are trivial inconveniences to otherwise high potential investments..hmmm

Comment author: 20 July 2014 05:54:45AM 1 point [-]

If other states follow Colorado's lead and legalize marijuana, there could be opportunities related to that. Not very 'techie' though.

Comment author: [deleted] 20 July 2014 07:51:30AM *  7 points [-]

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.)

Comment author: 20 July 2014 01:01:28PM 5 points [-]

For big tobacco companies it would be important that federal laws allows marijuana. In the absence of medical marijuana legalisation on the federal level it would be too much risk for a big established company to go there.

Comment author: 25 July 2014 02:24:54AM 0 points [-]

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.

Comment author: 05 November 2015 01:14:40PM 1 point [-]

I think almost anything you could do to get into Virtual Reality will pay immense dividends ten years from now, if not sooner.

I think that's a misunderstanding about how things work. Most ways of getting into virtual reality won't produce any results and any dividends. You would have to pick the right one to have immense dividends.

Comment author: 21 July 2014 06:13:50AM *  -1 points [-]

[removed]

Comment author: [deleted] 21 July 2014 01:20:37PM 5 points [-]

Do not buy altcoins. It will not end well.

Comment author: 22 July 2014 02:51:39AM *  0 points [-]

Not even Freicoins? Or do you mean weird, un-innovative altcoins that seem to add no real value to the ecosystem? Generally, it's hard to tell, but it seems certain altcoins try hard to differentiate themselves. Monero and Freicoin stand out as sufficiently different that they could turn out to be valuable (as far as altcoins go).

EDIT: Read the rest of the comments and noticed that you explicitly stated Freicoin is a possible exception to the rule. People may also be interested (although may also choose for various reasons not to invest) in other altcoins such as Ethereum (too complicated?), Zerocash (untested moon math?), Counterparty ("let's reduce the size of OP_RETURN and see how XCP reacts!"), Swarm (based on Counterparty) or Darkcoin (ninja premine?).

Comment author: [deleted] 22 July 2014 06:10:17AM *  1 point [-]

Disclosure: I am long on both bitcoin and freicoin.

You got me! I am, in fact, the co-author of Freicoin, and obviously very bullish, although my estimate of its future value has non-trivial discounts due to outstanding risks. In the economic model of Freicoin, the two currencies perform different, non-competing functions (store-of-value vs medium-of-exchange) and are perfectly capable of co-existing. Indeed, one can argue from inside the Freicoin perspective that both currencies are inevitable.

There is no proof that no other mutually compatible coin is possible, but nor is there any example other than Freicoin. Altcoins generally fall into three categories: those which are param tweaks of bitcoin (e.g. Litecoin), those which add features (e.g. Darkcoin), and those whose differing monetary policies from bitcoin make them stand apart as generally useful and compatible. The first two categories are useless as anything which tweaks params or adds features could be done in bitcoin directly or in a side chain, and Freicoin stands alone as the only example of the third case.

I try to say this from as unbiased a perspective as possible, but of course accusations of bias are incredibly easy to make here. I co-created Freicoin and still hold a large but decaying number of freicoins. However I spent as much time as I did on Freicoin because I believe the above.

Every other alt out there is junk -- including the ones you mention -- although I won't rule out the possibility of a another coin which differentiates from bitcoin and freicoin in a compatible manor. Although honestly I don't know what that would look like.

That's a very nuanced view though. So honestly it's just easier and less likely to be misunderstood to simply say "all alts are junk", and leave off the special case of Freicoin unless I have time to explain in sufficient detail.

Comment author: [deleted] 26 October 2015 04:14:44PM *  0 points [-]
• Freicoins is relatively unknown and doesn't appear to have a strategic advantage
• Litecoin and other non-anonymous alt-coins are very poorly strategically differentiated and small market share with most predicting they will be dominated by bitcoin eventually
• Bitcoin has already been heavily invested in and majority mined. Institutional investors are in, market efficiencies are out. how about the anonymous coins:
• Zerocoin is coded to allow for backdoors for government
• Darkcoin (now Dash) is poorly administered
• bytecoin is centralised
• Monero is promising, high market share, hard working movement and complimentary tech/web-site/feature building community

Monero is promising given that if say corporations who want to minimise tax, Cartels or other (criminal) organisations and entrepreneurs get into it, it is likely to spike up the price. The assumption is that they aren't already and that it is more efficient than current financial hiding stuff.

Note: Author does not hold these because her portfolio geared exclusively towards shareholder activism, but would be delighted for rationalists to win some. On the other hand, it kinda hurts me to know I'm probably increasing the probability of some dark rationalists sharehouse roomates getting charged for their dark market orders,

appreciate any criticisms, etc. For one, way to illiquide market. It's a huge hassle to send ID docuemnts to bitcoin trading websites to get approved...and there are literally 2 sellers on the peer to peer website. So either huge opportunity to make a buck selling, or huge opportunity for a tor based buying system, or both, or I'm wrong. I reckon another high impact, intellectually stimulating and profitable venture would be discreet, anonymous, data analytics, paralleling what commbiz does for dark net market businesses and such.

Comment author: 21 July 2014 08:18:52PM 3 points [-]

I'm betting on Bitcoin partially because lots of competent, high value people are willing to build out the core functionality and infrastructure for free just because they are excited about it. So owning bitcoins is partially owning a stake in all that labor. Altcoins don't really have this.

Comment author: 21 July 2014 08:03:49AM 0 points [-]

I see that http://crypto-prices.com lists 483 (as of this moment) digital currencies, of which, as it happens, Emoticoin is not one, despite one of those Emoticoin pages purporting to link to its listing there.

How would one assess which of those currencies, if any, has a future? Or whether one should instead invent a 484th? What will it take for a digital currency to succeed, where others fail?

Comment author: [deleted] 21 July 2014 06:53:41PM 1 point [-]

How would one assess which of those currencies, if any, has a future? Or whether one should instead invent a 484th? What will it take for a digital currency to succeed, where others fail?

In case it's not clear, if you do not know the answers to these questions, you should not be investing in altcoins.

Comment author: 21 July 2014 08:54:31PM 0 points [-]

I figured that, I'm wondering whether i should ignore the questions or look for answers.

Comment author: [deleted] 21 July 2014 10:05:12PM 0 points [-]

Yeah I meant that comment for other people. I figured that you figured that ;P

Basically the short answer is that there is absolutely no reason for any two p2p coins to exist which share the same or significantly overlapping monetary policy. Just about every alt out there is a scarce commodity, and therefore will be subsumed by bitcoin eventually. There is at least one that is different, e.g. freicoin which is explicitly designed to fill a different role and not compete with bitcoin, although whether such currencies will stand on their own remains very much up in the air. None of the others have a future. Those which provide new features that are useful will either have their changes merged into bitcoin, or be available for use with bitcoin via a sidechain value pegging mechanism.

(Disclaimer: I co-wrote Freicoin, and hold some of both Bitcoin and Freicoin, but nothing else.)