A bubble is defined as an economic cycle characterized by the rapid escalation of an asset market value. This can then be followed by a quick decrease in value, sometimes referred to as a "crash" or a "bubble burst." Most of us remember the Housing Bubble and the Dot-Com Bubble, but economic bubbles have been occurring periodically for centuries. One of the first recorded bubbles is The Dutch Tulip Bubble in Holland in the 1630's. Also known as Tulip Mania, the price of tulip bulbs rose twentyfold in a matter of a few months only to drop 99% in a few more months. They even had a trading market exchange and investors could purchase them on credit. It has been said that at the peak, some bulbs were trading at prices that would buy canal front mansions. It's amazing how we can get caught up in bubbles-maybe we're afraid of missing out(FOMO). A possible sign is buying something merely because it's going up and not knowing anything else about it. Are we in a bubble now? Who knows? Bubbles typically aren't identified until they're over-we shall see. It's still generally considered a good idea to buy quality investments and diversify your holdings. If you would like to read more about historic bubbles, check out the 1841 Charles Mackay book "Extraordinary Popular Delusions and the Madness of Crowds."
Bubbles
