The 4 Psychological Phases of Asset Bubbles
Every investment/asset will have inherent risk that comes with it; no risk no reward. The amount of risk will vary with each asset. But no matter what kind of asset it is, there is always a chance of an asset bubble. An asset bubble is the result of human emotion in play in the markets. Investors get overzelous on an asset and become delusional in thinking that the sky is the limit, which creates sky high prices. But eventually, the bubble bursts.
The most recent bubble burst is the real estate bubble. We saw it burst in 2007/2008 and it has only begun to recover. A lot of people lost a lot of money when that bubble bursted. However, a few savvy investors saw the asset bubble coming and hedged against it. So if you want to protect your wealth or even make money when asset bubbles burst, learn to recognize the patterns in an asset bubble. In each asset bubble, there are four distinct phases, which are: Stealth, Awareness, Mania, and Blowoff.