Matt Levine is a smart guy but often tends to oversimplify. It is not just one of the three, is all three at the same time.<p>The number 1 is more or less true for a good number of companies. Number 2 and 3 applies to the rest of the companies depending on the investor you are looking at. The number of gullible investors is non-zero. Throws in that many companies are in option 1, and distinguishing between 1 and 2&#x2F;3 became a complex problem.<p>So, we have a subset of companies whose price is determined by the ratio between good and bad investors. Obviously, good investors will fly away from these companies. But these companies could make you a lot of money if you leave soon enough. And then in finance classes, they use to say: &quot;the market could stay irrational longer than you could stay solvent.&quot;<p>The results? Inflated Pro-forma statements stay around for enough time to do damage.