by Lance Roberts
Real Investment Advice
Yes. We are in a stock market bubble. But what if conventional methods of examining market cycles miss a crucial point? While we often talk about parts of cycles (bull or bear), exploring the full-market cycle may provide another way to look at long-term bubble cycles.
The Speculative Cycle
Charles Kindleberger suggested that speculative manias typically commence with a “displacement,” which excites speculative interest. The displacement may come from either an entirely new investment object (IPO) or increased profitability of established investments.
The speculation gets reinforced by a “positive feedback” loop from rising prices. Such ultimately induces “inexperienced investors” to enter the market. As the positive feedback loop continues and the “euphoria” increases, retail investors then begin to “leverage” their risk in the market as “rationality” weakens.