How To Spot A Bubble

Here are the characteristics of a bubble:

  1. Fads, trends or new developments emerge encouraging new investment.
  2. Rising share prices encourage optimism and expectations of yet higher prices.
  3. Deregulation and liberalization create new opportunities, particularly in emerging markets.
  4. Buying sprees are fueled by plentiful credit supply.
  5. More equity issues are made to satisfy investor demand.
  6. New types of derivatives make an appearance and margin trading increases.
  7. Share price rises rapidly overtake bond price increases.
  8. A common interest in talking up the market is created, stretching from governments to small investors.
  9. Buoyed by strong performance, fund managers grow more bold and feel more omnipotent.
  10. News of spectacular profits draws in gullible novice share buyers in great numbers.
  11. Fund managers and professional investors try to replicate high level of gains by taking bigger and bigger risks.

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