---
description: The telecom bust and automotive shakeout show that even accurate attractor identification produces bubbles when capital inflows outpace organizational readiness
type: claim
domain: teleological-economics
created: 2026-02-17
confidence: likely
source: "Attractor state historical backtesting, Feb 2026"
tradition: "Teleological Investing, complexity economics"
---

# industry transitions produce speculative overshoot because correct identification of the attractor state attracts capital faster than the knowledge embodiment lag can absorb it

Historical backtesting reveals that correctly identifying an attractor state does not protect against timing risk and bubble dynamics. The direction of convergence can be right while the pricing is catastrophically wrong. This overshoot pattern appeared in at least two of five transitions studied and has direct implications for teleological investing methodology.

The telecom transition is the clearest case. After the 1996 Telecom Act opened local markets, capital flooded into infrastructure -- over $500 billion in five years, mostly debt-financed. The direction was correct: more capacity, lower costs, internet-centric architecture. But the capital arrived faster than the organizational knowledge and customer demand could absorb it. WorldCom's fraud, Global Crossing's bankruptcy, and $2 trillion in lost market value followed. An attractor-state investor who entered during 1998-2000 with correct directional analysis would have lost catastrophically. The real investable moment was 2002-2003, buying reconsolidating Baby Bells at post-bust prices.

The automotive shakeout shows the same dynamic at a slower pace. Hundreds of manufacturers entered during the fluid phase when entry was easy and the dominant design had not locked in. Almost all were destroyed during consolidation. By 1929, Ford, GM, and Chrysler dominated an industry that once had several hundred participants. The overshoot was not primarily financial (as in telecom) but entrepreneurial -- too many entrants pursuing an attractor state that could only sustain a few winners.

The mechanism connects two dynamics. Since [[knowledge embodiment lag means technology is available decades before organizations learn to use it optimally creating a productivity paradox]], the attractor state is visible before the organizational capacity to reach it exists. Capital markets, seeing the destination, price in arrival before the journey is complete. Since [[minsky's financial instability hypothesis shows that stability breeds instability as good times incentivize leverage and risk-taking that fragilize the system until shocks trigger cascades]], the early phase of a transition looks like stability and growth, which incentivizes leverage and risk-taking that produce the overshoot.

The overshoot is the disruption cycle's fragility phase applied specifically to the capital allocation process during a transition. Since [[the universal disruption cycle is how systems of greedy agents perform global optimization because local convergence creates fragility that triggers restructuring toward greater efficiency]], investors themselves are greedy agents who converge on the visible attractor, creating correlated bets that amplify when the knowledge embodiment lag reasserts itself.

For teleological investing, this implies a required "overshoot model" layered on top of attractor state analysis. Three principles emerge from the historical cases:
1. **Invest after the keystone, but before the consensus** -- the window between threshold-crossing and widespread recognition offers asymmetric upside without bubble pricing
2. **Expect the bust** -- transitions that attract significant capital will produce overshoot; position sizing and time horizon must account for a potential 50-80% drawdown
3. **The post-bust reconsolidation is often the best entry** -- Maersk entering containerization in 1973, investors buying Baby Bells in 2002, Chrysler entering automotive during the shakeout: the best risk-adjusted returns come from deploying capital after overshoot clears out weak hands

---

Relevant Notes:
- [[attractor states provide gravitational reference points for capital allocation during structural industry change]] -- correct attractor identification is necessary but not sufficient; overshoot management is required
- [[knowledge embodiment lag means technology is available decades before organizations learn to use it optimally creating a productivity paradox]] -- the gap between technology visibility and organizational readiness is where overshoot forms
- [[minsky's financial instability hypothesis shows that stability breeds instability as good times incentivize leverage and risk-taking that fragilize the system until shocks trigger cascades]] -- Minsky's mechanism explains why correct directional bets still produce bubbles
- [[the universal disruption cycle is how systems of greedy agents perform global optimization because local convergence creates fragility that triggers restructuring toward greater efficiency]] -- overshoot IS the fragility phase applied to capital allocation during transitions
- [[pioneers prove concepts but fast followers with better capital allocation capture most long-term value in industry transitions]] -- post-bust entry is the ultimate fast-follower strategy

- [[good strategy requires independent judgment that resists social consensus because when everyone calibrates off each other nobody anchors to fundamentals]] -- overshoot is the closed-circle problem applied to capital markets during transitions: investors calibrate off each other's enthusiasm rather than anchoring to knowledge embodiment timelines
- [[five errors behind systemic financial failures are engineering overreach smooth-sailing fallacy risk-seeking incentives social herding and inside view bias]] -- speculative overshoot during transitions exhibits all five errors: engineering overreach in projections, smooth-sailing from early gains, asymmetric incentives, social herding into the consensus thesis, and inside-view bias on timing
- [[information cascades produce rational bubbles where every individual acts reasonably but the group outcome is catastrophic]] -- speculative overshoot IS an information cascade: investors see others deploying capital into the attractor thesis and rationally follow, each confirming the perceived consensus while disconnecting from the organizational readiness fundamentals

Topics:
- [[attractor dynamics]]
- [[livingip overview]]