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How to Handle a Stock Market Bubble

Last update on: Mar 14 2020

This thoughtful essay discusses several cases in which smart, successful investors lost money because they caved in to recent trends. The fundamentals of the investments didn’t meet their criteria, but they invested anyway, because they saw other people making a lot of money and wanted to join the party. It turns out they bought at the top. It’s good reading anytime, but it good reading now when stocks seem to climb steadily without much fundamental support.

You see, the real tragedy of our life is not that someone else is getting richer or healthier than us, but that he is getting there faster than us.

Another tragedy is that when we fall into this comparison trap, it’s hard to stop.

Look at fund managers. Most of them have similar stocks in their portfolios, and most still claim to have the skills to outperform others.

Read stock forums. Most of them are filled with the noise of people comparing their portfolios with others’.

Why do you think any mention of “5 stocks to buy” or “best stocks to buy now” raises your brain’s antennae? This is because you want to compare those best stocks to your existing portfolio and buy whatever you don’t have already.

This habit of unintelligently buying things because someone else is making fast money on them comes to the fore when the markets have been rising for some time.

 

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