A longtime venture capitalist sees the religious dedication to Elon Musk, hype, and YOLO investing as almost a dot com-style pyramid scheme in the making.
Just over two decades ago, Josh Wolfe co-founded Lux Capital, a New York City-based venture capital firm dedicated to investing in science and technology firms developing ideas with the potential to change the world. The year was 2000, and the dramatic growth of the internet over the previous decade had created a bubble that was beginning to burst. Over the next few years, the NASDAQ would drop by more than 75% as a slew of heavily-hyped tech startups plunged into failure, humbling the recently overconfident industry.
The lessons of the dot com bubble stuck with Wolfe, who developed a skepticism of hype and a passion for finding businesses with solid balance sheets and healthy cash flow. But today, Wolfe sees many of the same psychological forces enveloping tech firms and the broader investor class. The YOLO investing process, most closely associated with the subreddit wallstreetbets, has pumped stocks like GameStop to the moon and pushed people all in on fad coins like DogeCoin. But for many people, it has also replaced the investment process, popularized by one of Wolfe’s idols, Warren Buffett, of a slow and steady search for good business fundamentals.
“To The Moon is not fundamental analysis. It is an inducement. It is an encouragement of belief. And the only thing that is fueling that rocket ship To The Moon is the credulity of others,” Wolfe told Motherboard. “These are all pressure tactics weaponized to induce people to be greater fools. And it’s almost like a pyramid scheme: Get the next people in, and those people have every incentive to tell their friends, Yeah, I just made, you know, 20-50 percent in a day, and you got to get in on this. But they’re not gonna be ringing the bell at the top and saying, It’s time to sell. Because when we’re there, it’s a rush to the exit. And that’s when you see mass downturn.”
The market today reminds Wolfe in many ways of the same forces that were so prominent at the height of the dot com boom, and perhaps no single person better encapsulates the moment than the world’s richest man, Elon Musk. Motherboard spoke to Wolfe about the worrying signs he sees, and the downside of prioritizing hype over fundamentals.