Bubble
A bubble, also known as an economic bubble or market bubble, is an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. Occurs when securities are traded at prices unwarranted by the fundamentals driven by exuberant market behavior, these bubbles mark prices to constantly change to a point where supply and demand can no longer set the price. As they are deceptive and unpredictable, bubbles are followed by burst or crash, leading prices tumbling. The life cycle of a bubble displacement, boom, euphoria, profit-taking, and panic. Historic economic bubbles include The Housing Bubble, Dot-Com Bubble, Stock Market Crash of 1929, and Tulip Mania.
- Bubbles are easy to see when looking at a time series price chart
- It's difficult to tell when exactly bubbles will pop - they can always go higher
- Bubbles tend to deflate far faster than they inflate
- Bubbles deflate very sharp and fast
- Think 20-50% in matter of months!
- Bubbles follow a typical pattern
Some World's Greatest Bubbles
- Steam Engines
- US Canals (1700s)
- US Midwestern Real Estate (1800s)
- Railroad boom (peak in 1920s)
- Automobiles (1929)
- Bitcoin (2017)