Clear Thinking on Bubbles

The investment world is full of those who say one or more assets are in bubbles or bubble territory. It’s exciting talk, but not very useful to investors. Bubbles are extremely rare, and overvalued assets can remain overvalued for a long time. Tyler Cowen of Marginal Revolution provides some clear thoughts on all the bubble talk. Take a look, and refer to it any time you see some other claim about bubbles.

1. I don’t find most predictive discussions of bubbles interesting, while admitting that such claims often will prove in a manner correct ex post.  “OK, the price fell, but was it a bubble?  I mean was there froth, like on your Frappucino?”  Or to quote Eisinger, it might also have been “dangerous signs of prebubble activity” (what happens between the “prebubble” and the “bubble”?  The “nascent bubble”?  The “midbubble”?  The “midnonbubble”?)

2. Good news and improving conditions may well bring more bubbles or greater likelihood of bubbles, but that is hardly reason to dislike good news and improving conditions.