Bubble
Also called: speculative bubble, market bubble
A period when prices rise far beyond what the underlying businesses or assets can justify, driven by the crowd and easy credit, before collapsing.
Bubbles often start with a real story, attract new investors and borrowed money as prices rise, dismiss valuation with claims that this time is different, and end when buyers run out. Bubbles are easier to identify afterwards than at the time.
Example
The dot-com bubble of the late 1990s ended with the Nasdaq Composite losing more than three-quarters of its value between March 2000 and October 2002.
Learn more in these lessons
- Herd behaviour and recency biasWhy do investors pile in at the top and sell at the bottom?
- Investment mistakes and lessons from historyWhat mistakes keep repeating in market history, and how can you avoid them?
- Case study: a valuation bubble (technology shares, 1999-2002)What does the dot-com bubble teach about paying too much for good ideas?
Related terms
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