Road Runner

Predicting the Next Great Bubble

Trying to predict and ride a bubble is like trying to time the market, both very difficult and risky to do.

Bubbles are very illusive and hard to detect until they pop. The next bubble is not going to be something talked about in this article which are all conventional wisdom. It's going to be something with a very compelling argument to buy into where the risk is hidden to everyone except the deep diggers.

The Internet was the next revolution back in the late 90s, but it just got too far ahead of itself. The burst started when a telecom company went bankrupt and its built-out infrastructure sold for a lot less than thought. Then suddenly the venture capitalists and banks realized the collateral for their loans to these companies was too small, and the money dried up. Note how the reality was deeply hidden until the bubble burst.

The housing bubble was predicted by the deep diggers starting back in 2003. But, because they were years too early, their message became boring with a sense of “crying wolf”. I remember these reports on CNBC and Bloomberg back in 2005. I was telling friends and family to not buy property and sell any property they did not need. But, there was such a strong sense that “If I don’t buy now, I’ll be left out of the market” that some of those people bought anyhow extending the bubble. Note that though I saw the bubble coming because I was very well informed, I never saw how disastrous the housing crash would be. If I had any clue, I would have been much more forceful with the people I talked to.

My advice for bubbles is to stay well informed, work to avoid getting hurt by bubbles, and not try to ride them up or down. Even if you are right about a bubble, you may be too late or way too early.