Monday, February 5, 2018

Bubble, bubble toil and trouble - is the easy part

Talking head on TV and the internet love to point out the existence of bubbles. Depending on who you listen to, some or all of the following markets are in a bubble: cryptocurrencies, equities, and real estate.

But to point that out is of relatively little value. The real money is made by determining where in the bubble the asset valuations are at.

In the late 1990's I was absolutely sure that the stocks were in a bubble - so I stayed away from them, not investing in a single one. By doing so, I managed to avoid the significant losses many investors suffered when the bubble popped. But I also missed out on much of the profit opportunities that they experienced as these stocks appreciated to their stratospheric valuations.

My point? Pointing out that there is a bubble doesn't make you a great investor. Figuring out where in the bubble cycle you are at is what makes you money... and that's a lot more difficult to do than just saying, "we are in a bubble."