“To ultimately survive, it is also essential that you become aware of the signs of a bubble and avoid them at all costs. You will probably leave profits on the table but will also avoid the painful and debilitating financial collapse that follows along with those who were either too short-sighted or greedy to avoid entrapment in the Pollyanna Paradox.” Matt Blackman
“Wishful thinking bias appears to play a role in the propagation of a speculative bubble.” Robert Shiller
“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality – but reality as distorted by a misconception. Under normal conditions misconceptions are self-correcting, and the markets tend toward some kind of equilibrium. Occasionally, a misconception is reinforced by a trend prevailing in reality, and that is when a boom-bust process gets under way. Eventually the gap between reality and its false interpretation becomes unsustainable, and the bubble bursts.” George Soros
“This over eagerness to buy is a classic sign of a bubble.” Unknown
“The essence of a speculative bubble is a sort of feedback, from price increases, to increased investor enthusiasm, to increased demand, and hence further price increases.” Robert Shiller
“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’ If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.” Warren Buffett
“The high demand for the asset is generated by the public memory of high past returns, and the optimism those high returns generate for the future. The feedback can amplify positive forces affecting the market, making the market reach high levels than it would if it were responding only directly to these positive forces. Moreover, a bubble is not indefinitely sustainable. Prices cannot go up forever, and when price increases end, then the increased demand that the price increases generated end too. Then, a downward feedback can replace the upward feedback.” Robert Shiller
“Chain letters, bubbles, pyramid schemes, Ponzi finance, and manias are somewhat overlapping systems. The generic term is non-sustainable patterns of financial behavior, in that asset prices today are not consistent with asset prices at distant future dates.” Charles Kindleberger
“The representativeness heuristic encourages people to react to price changes in an exaggerated manner, but the conservatism bias spreads this pattern out through time. Their [Tversky & Kahneman] model of the propagation of a speculative bubble is undoubtedly oversimplified, relying as it does on only a couple of subjective probability biases, but offers useful insights.” Robert Shiller
“Speculative bubbles are most typically a function of leverage, which takes its cue from aggressive lending practices (when uncollateralized paper loan claims dwarf the pool of reserves of the system).” Paul Brodsky and Lee Quaintance
“If I may interpret the model more broadly, I think we can say that investors have overconfidence in a complex culture of intuitive judgments about expected future price changes, and an excessive willingness to act on these judgments. This overconfidence is then a powerful force in the market, and these intuitive judgments ultimately are behind both the feedback that underlies the bubble and the end of the feedback that signals the end of the bubble.” Robert Shiller
“The bubble involves the purchase of an asset, usually real estate or a security, not because of the rate of return on the investment but in anticipation that the asset or security can be sold to someone else at an even higher price; the term the ‘greater fool’ has been used to suggest the last buyer was always counting on finding someone else to whom the stock or the condo apartment or the baseball cards could be sold.” Charles Kindleberger
“The monstrous credit and debt bubble in the United States, through years of over accommodation by the Federal Reserve, has created an economy with an array of horrible and massive dislocations and imbalances that make a sustained recovery impossible.” Kurt Richebacher
“Once stock prices reach the point at which it is hard to value them by logical methodology, stocks will be bought as they were in the late 1920s not for investment but to be unloaded at a still higher price. The ensuing break could be disastrous because panic psychology cannot be summarily altered or reversed by easing money policies.” Alan Greenspan
“It was the Fed’s expansion of the money supply (1% interest rates!) that created the bubbles.” Harry Binswanger
“The term mania describes the frenzied pattern of purchases, often an increase in prices accompanied by an increase in trading volumes; individuals are eager to buy before the prices increase further. The term bubble suggests that when the prices stop increasing, they are likely – indeed almst certain – to decline.” Charles Kindleberger
“In the twenty-first century it has become fashionable to manage one’s own investments, yet few traders implement disciplined, professional money management strategies. During the stock market bubble, limiting risk was an afterthought, but given the recent price action, it’s time to get serious about management of money and risk. Professional risk and money management strategies are the foundation for success in trading in any market. Basically, money management tells you how many shares or contracts to trade. This is the most crucial decision a trader faces. This decision determines both risk and profit.” Michael Covel
“The ability of banks to issue claims far in excess of their reserve position is essentially regulated counterfeiting when those claims have little or no chance of being satisfied, and it is an inherently cyclical and destabilizing process.” Paul Brodsky and Lee Quaintance
“The process of remediating the monstrous mess created by the bubble years in the economy and the market both is by no means over. The insidious effects of the looting of Corporate America’s good name by the scoundrels entrusted with its stewardship are hardly dissipated. Pure and simple, it beggars belief and runs counter to common sense and logic that the biggest stock market bubble in history won’t engender an equally powerful bear market. Before it’s over, it will, and it won’t be over until it does.” Alan Abelson
“Major speculative bubbles, as I argued in Irrational Exuberance, are always supported by some superficially-plausible popular theory that justifies them, and that is widely viewed as having sanction from some authority figures. These may be called new-era theories.” Robert Shiller
“The Fed, in effect, has become a serial bubble blower.” Stephen Roach
“The monetary history of the last four hundred years has been replete with financial crises. The pattern was that investor optimism increased as economies expanded, the rate of growth of credit increased and economic growth accelerated, and an increasing number of individuals began to invest for short-term capital gains rather than for the returns associated with the productivity of the assets they were acquiring. The increase in the supply of credit and more buoyant economic outlook often led to economic booms as investment spending increased in response to the more optimistic outlook and the greater availability of credit, and as household spending increased as personal wealth surged.” Charles Kindleberger
“People fail to perceive fully that the new-era theory, despite having some concrete facts as part of the story, in fact has no solidity; the concrete facts do not lead to a new-era conclusion without the insertion of some outright guesses. That error people make is in presuming that someone else has verified the conclusion carefully, when, while some have tried, in fact no one has really been able to do so.” Robert Shiller
“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” Alan Greenspan
“As a student of bubbles and crashes, I can tell you that I have never seen a bubble in equities unwind without an unwind in property. For example, Japan, Korea, Hong Kong, the Philippines, Thailand, Indonesia, Mexico, and Brazil. And the unwind generally begins when credit goes south, which happens shortly after an overvalued currency begins to fall, which follows the first leg down of a big, ugly bear market.” Richard Russell
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