“A bubble is a market cycle that is characterized by the rapid escalation of market value, particularly in the price of assets.
Typically, what creates a bubble is a surge in asset prices driven by exuberant market behavior. During a bubble, assets typically trade at a price
that greatly exceeds the asset’s intrinsic value. Rather, the price does not align with the
fundamentals of the asset.“
This definition is suitable for our discussion; there are three components of a
“bubble.”
The first two, price and valuation, as noted above, are get dismissed or rationalized during the inflation phase. That rationalization is due to investor psychology and the
“bubble in the stock market. To wit:
“To appreciate how widespread current concern about a bubble is, consider the accompanying chart of data from Google Trends. It plots the relative frequency of Google searches based on the term ‘stock market bubble.’ Notice that this frequency has recently jumped to a far-higher level than at any other point over the last five years.
What Is A Bubble?
“My confidence is rising quite rapidly that this is, in fact, becoming the fourth ‘real McCoy’ bubble of my investment career.
The great bubbles can go on a long time and inflict a lot of pain, but at least I think we know now that we’re in one. -
“A bubble is a market cycle that is characterized by the rapid escalation of market value, particularly in the price of assets.
Typically, what creates a bubble is a surge in asset prices driven by exuberant market behavior. During a bubble, assets typically trade at a price
that greatly exceeds the asset’s intrinsic value. Rather, the price does not align with the
fundamentals of the asset.“
This definition is suitable for our discussion; there are three components of a
“bubble.”
The first two, price and valuation, are readily dismissed during the inflation phase. Jeremy Grantham once produced the following chart of 40-years of price bubbles in the markets. During the inflation phase, each was readily dismissed under the guise