You don’t want to short bubbles.

That might sound counterintuitive. After all, if not bubbles, what to short? Besides, “big shorts” make for bestsellers and bestsellers can be good screenplays and… well, do you want Christian Bale to play you in a Hollywood blockbuster or don’t you?

Here’s the problem, though: Nine times out of 10, you’re not going to time it correctly, and by “nine times out of 10” I actually mean “never.” You’re never going to time it correctly. Successfully shorting bubbles (real bubbles) is like hitting the lottery. Sure, somebody’s going to win, and you can’t win if you don’t play, but that somebody isn’t going to be you, which means to play is to pay an idiot tax. That’s especially true for everyday investors, the vast majority of whom wouldn’t have the logistical wherewithal to short a major bubble even if they could identify one.

Regular people can, of course, short individual stocks or dabble in small-lot options, but even there, the average person is going to lose far more often than they’re going to win. For one thing, most people don’t bother to assess the economics of their trades, which can mean losing money even when they (the trades) moves in their favor. But more importantly from a big picture perspective, the psychology of manias is such that calling tops is synonymous with identifying peak excitement — you have to take the temperature of human behavior and be able to say “That’s it. We’ve overheated and this is the tipping point.” That’s impossible, and it’s not what Michael Burry did. Burry identified a non-behavioral trigger for his thesis — he knew people wouldn’t be able to pay their mortgages.

The above is a needlessly circuitous way of restating sundry tired adages, all of which are themselves just riffs on the foundational observation that “markets can stay irrational longer than you can stay solvent.” The reality is that as long as you’re not pathologically greedy and thus predisposed to risking life and limb to squeeze every last penny out of a trade that’s already minted a fortune, you want to be long bubbles, because the odds of the delirious masses chasing them higher are immeasurably greater than the odds of you successfully timing the peak.

Over the past several weeks, those of a bearish persuasion repeatedly pointed to the narrowness of the US equity rally, noting that the entirety of this year’s gains for cap-weighted benchmarks were attributable to a handful of names, including Microsoft and Nvidia, which became synonymous with the burgeoning A.I. “mini bubble,” as BofA dubbed it. Implicit (and sometimes explicit) was the notion that a top-heavy rally is destined to tip over.

That sounded convincing and to be sure, I echoed some version of the narrative, but it’s suddenly clear that naysayers underestimated the potential for A.I. to be a “right here, right now” fundamental catalyst. The associated revenue bump for Nvidia might be a “one-off” (the new, modified bear case) but it isn’t far off, as some previously suggested. Rather, the company is raking it in as we speak. And so is CEO Jensen Huang.

Nvidia’s historic one-day surge generated a $6 billion paper gain for Huang in the space of just a few hours Thursday. According to Bloomberg’s index, Huang’s net worth is up some 150% in 2023. No global billionaire has experienced a more dramatic increase this year in percentage terms.

The surge pulled anything even remotely related to A.I. along for the ride, a sign of things to come, perhaps. Barclays declared “the beginning of a paradigm-altering wave.” How’s that for hyperbole?

But that’s just the thing. It might not be hyperbole if you’re a believer in the promise of generative A.I. As detailed extensively in April’s monthly letter, I’m skeptical. Certainly not skeptical enough to short it though, especially not when “it” currently just means Nvidia.

“If the A.I. trade simply boils down to Nvidia, then perhaps it can persist with relative permanence, much like Tesla and the electronic vehicle revolution,” Bloomberg’s Cameron Crise, a veteran trader, remarked, adding that it’s “still relatively early in the blossoming of the A.I. thematic ‘trade of a lifetime,’ so it would be foolhardy in the extreme to try and stand in the way of a parabolic rise.”

Yes, indeed. And as the figure above shows, some “fools” did try to stand in the way, and they were run over. Specifically, shorts lost more than $2 billion in a single session, bringing mark-to-market losses for the year to more than $8 billion, according to S3 Partners.

Cathie Wood dropped Nvidia from her flagship fund early this year, even as some of her other products still hold the shares. She cited, in part, the stock’s elevated valuation.

If you believe any part of the A.I. apocalypse story, you’re probably despairing on Thursday. We’re facilitating our own destruction even faster than critics imagined prior to Nvidia’s quarterly report. It’d be ironic if humanity’s incurable penchant for asset bubbles accelerates our demise as a species. After all, human civilization is the biggest bubble history has ever known.