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November 4, 2011

Can bubbles be spotted before they burst?

Jason Zweig’s November 5th article in the Wall Street Journal discusses “The Extraordinary Popular Delusion of Bubble Spotting”.  He believes that “If you watch carefully for signs of euphoria, you can sidestep the damage when markets go mad.”  Therefore he warns Investors to always guard against glib assertions of pundits who claim they can detect bubbles before they burst.
He reminds us that Benjamin Graham “; the famed speculator who survived the crash of 1929 suggested that investors should never have less than 25% or more than 75% of their money in stocks.  He argued for reducing the allocation to stocks “when in the judgment of the investor the market level has become dangerously high.”  But, because no one can perfectly predict a bubble, you should never go either to zero or 100%.
The observations and antidotes makes for an interesting article.
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