First Principles with Andy Constan

How to Invest During a Bubble Regime - Practical Lessons from Market History

In this episode of First Principles, Andy Constan explains how investors should think about portfolio construction, risk management and alpha during a bubble regime. We discuss why bubbles create FOMO, why low volatility can make investors take the most risk at the worst time, and how long-only and active investors can prepare for the other side without trying to call the top. Andy Constan on X https://x.com/dampedspring [https://x.com/dampedspring] Damped Spring https://dampedspring.com/ [https://dampedspring.com/] Main topics covered: * Why bubble regimes require a different investor mindset * The phases of a bubble: change, escalation, parabolic move and pop * Why calling something a bubble does not mean calling the top * How FOMO and buyer’s regret lead investors into major mistakes * Why investors should know whether they are more vulnerable to chasing or panicking * How Andy thinks about the market portfolio beyond just stocks and bonds * Why stocks-only portfolios are less diversified than many investors realize * How low-volatility uptrends cause investors to lever up at the wrong time * Why rebalancing rules may need to change in a trending bubble market * How cash, dollar-cost averaging and lump-sum investing should be evaluated through investor behavior * Why many alpha strategies stop working as well in bubble regimes * Why momentum can work better than mean reversion during bubbles * How contagion spreads after bubbles pop and where future alpha may appear Timestamps: 00:00 Why bubble regimes feel low risk 00:59 Setting up part two on bubble positioning 02:07 The phases of a bubble 05:23 Why a bubble regime is different from a normal bull market 07:23 How investors should shift their mindset 10:29 Why knowing yourself is harder than it sounds 14:00 Can a bubble resolve without popping? 17:13 Why long-only investing should mean more than stocks 24:21 Lowering maximum exposure in a bubble regime 30:23 How 60/40 investors should think about rebalancing 33:20 Cash, lump sums and dollar-cost averaging 42:31 How active investors should adjust alpha strategies 46:16 Why mean reversion can fail in bubbles 49:41 How contagion spreads through markets 54:06 Preparing for post-bubble opportunities without calling the top

Root Conditions. Escalation. Peak | Andy Constan on What Investing Through Five Bubbles Taught Him About AI

First Principles with Andy Constan launches with a deep dive into market bubbles, AI, semiconductor stocks, and the financial conditions that can turn powerful technological change into a dangerous investment regime. Andy explains how bubbles form, why they are almost impossible to time, how today’s AI boom compares to past episodes like 1987, the dot-com bubble, housing, and the bond bubble, and what investors should watch as expectations, financing, and FOMO build. Andy Constan on X https://x.com/dampedspring [https://x.com/dampedspring] Damped Spring Advisors https://dampedspring.com/ [https://dampedspring.com/] Topics covered: * Why bubbles are easy to identify in hindsight but nearly impossible to define in real time * The difference between an expensive market and a true bubble regime * How new technologies, easy money, regulation, and exogenous shocks can create bubble conditions * Why AI may rhyme with the internet boom without being an exact repeat * The role of ChatGPT, Microsoft’s OpenAI investment, and semiconductor earnings expectations * What the 1987 crash, Japan, housing, bonds, and dot-com bubble can teach investors today * Why human nature, FOMO, and “keeping up with the Joneses” make bubbles so powerful * How the late-1990s Fed response to Long-Term Capital Management helped fuel the final phase of the tech bubble * Why tech’s current size in the economy and market may limit how far the AI boom can grow * How AI capex, hyperscaler spending, buybacks, debt issuance, and IPO supply could determine what happens next Timestamps: 00:00 Intro and the challenge of identifying bubbles 04:32 Expensive markets vs true bubble regimes 09:57 The five bubble episodes Andy compares to today 14:35 Root conditions, escalation events, and the peaking phase 19:20 Why the 1987 crash may also have been a bubble 24:25 The late-1990s setup and the Netscape Navigator moment 28:00 Crisis analogs, easy financial conditions, and today’s AI parallels 32:20 Long-Term Capital Management and rocket fuel for the tech bubble 36:11 Why tech’s market share matters more today than in the 1990s 43:18 Policy mistakes, subsidies, and how governments feed bubbles 47:42 Semiconductor earnings expectations and valuation risk 53:45 The AI capex chain and where the money has to come from 58:42 IPOs, corporate debt, and the financing risk behind the AI boom 01:02:27 What investors should do differently in a bubble regime