The term bubble is in the market news a lot lately. What’s A Bubble? An interesting interview on NPR (15:37) with Nobel Laureates Fama and Shiller (who are polar opposites on this question and most everything else about economics).
Here’s a thought: When the Dow hit a high the first time at 10,000, was that a bubble at that time? At what higher close did it become a bubble? 12,000? 14,000?
Yes, at some point something unexpected happens and then prices are reset with that new news. This is basically Fama’s position. Shiller says that at some point, prices peak … that’s true. But he doesn’t know exactly when that would happen … so I’ll call that half a prediction.
The debate continues.
I’m in Fama’s corner on this … and these blogs explain the approach to the markets under this point of view.
Lots of poor investing discipline happens when one lets emotions rule decisions – fear or greed – either leads to extremes at times. Poor discipline costs you.