Aswath Damodaran, a Professor of Finance at the Stern School of Business at New York University, has an interesting post on market bubbles. Is it worth the time and effort to spot bubbles? What are you supposed to do if you have strong feelings about the existence of a bubble? I’ll just list his key takeaways here, you should read the whole thing at your leisure.
- There will always be bubbles. Bubbles are part and parcel of financial markets, because investors are human.
- But bubbles are not as common as we think they are. And they are not always irrational.
- Bubbles always look obvious in hindsight.
- Bubbles are not all bad.
- Doing nothing is often the best response to a bubble.
Source: Bubble, Bubble, Toil and Trouble: The Costs and Benefits of Market Timing
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