We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
Seth Klarman, billionaire investor and promoter of risk-averse value investing, is concerned. Seth thinks the U.S. should actually try capitalism. He's right, considering the current status of Detroit, with many other cities and states to follow. Living within your means is a good idea. Competition and the market are more effective tools than policies promoting 'fairness' and picking winners.
I tend to agree with Alan Greenspan, that bubbles can't be predicted. I'd go so far as to say they can't even be defined. You 'know them when you see them'. Didier Sornette would disagree and has some basis for his view. However, Sornette's model isn't necessarily predictive of bubbles, and rather charts obsessive investing behaviors. Not all obsessive behaviors lead to bubbles, though his model is still informative. Regardless of how much you trust Sornette's models (and I do), the question is less one of 'what do you do' and rather 'what don't you do'.
It's worth noting if you do something right, it usually appears that you did nothing at all.
That's always bugged me about bubbles, too. It's easy enough to define them in hindsight, but if you say we're in a bubble now, all you're really saying is that you predict that the recent steep increase in prices will soon be followed by a steep decline. If you could reliably get that one right, you could make a fortune. If you get it wrong, all that happened was that you failed to get in on the ground floor.
Its a good idea, and probably would work, but there's no chance for graft, gaming the system, and legal theft would be eradicated, thus endangering our political class and their crony's . With undo shifting of the table, and making it level\fair, modern business cannot complete, since most of the models depend on a slanted table to them.
Add all the mountianous rules, regulations, oversight (Sarbanes\Oxley, anybody? (anything but) Reform banking regs?) and our politicians whom are mindlessly dumb on fiscal matters, less what the crony capitialist 'say' is good (for them), its an uphill push of a might big rock.
Again, It would be wonderful to see it work, but it can't\won't under our current stewardship.
Perhaps, if that's how you define it.
But you have to know all those people and you have to know for sure they don't know squat.
It is true that when my father told me that conversations at the hospital he worked in began and ended with discussions on which stocks people were purchasing, I recommended he reduce his holdings. He asked why, and I replied that if the average person is talking about stocks as if they really know what they are doing, then most of them are probably following hunches and spending money they don't have, or should be more careful with. They were trying to make a quick buck.
He did reduce his holdings and was grateful that most of his holdings missed the crash in 2001 and again later in 2008 (after he'd retired and it would have been more devastating).
But this is hardly a useful macro gauge. It's good for your personal insight, but doesn't, can't and shouldn't inform a larger policy decision.
People have to be allowed to make their own mistakes, and they have to be allowed to learn from them rather than being compensated for making them.
Sadly, the world we live in today compensates the large companies that encourage, and are a leading cause of, bubbles being created and bursting, but we leave the everyday schmuck investor out in the cold. Better to leave them both with their losses than compensating one over the other.
I'd say a bubble is when the so-called professional investors start drinking their own snake oil. That's what happened in the housing bubble. They actually started buying up their own mortgage security garbage.
Again, as I pointed out above, you need to know all of them and you need to know that's what they are doing. As Texan99 pointed out above, if you act on that concept and you're wrong (which you're likely to be more often than not), you will get crushed.
We all get lucky from time to time. I bought Apple a long time ago at $15, when Michael Dell said if they folded and paid out cash to investors, the investors would do better. I took that as a good sign. I sold it at $60 - much to my chagrin today. On the other hand, I invested in HP after the Compaq merger. Made a ton of sense and I liked Michael Capellas and Carly Fiorina (still do). I just didn't spend enough time looking under the hood.
I'd have to say my best and luckiest decision was not investing in Florida, and that was a hunch as well. I was told to invest in some new condos being built on my in-law's island. I drove by a few times. Signs saying 100% sold, but units still for sale!
Exciting - except there were 2 problems. The first was 100% sold and very few cars in the parking lots. 2 of the buildings were finished, so someone should have moved in, right? The second was 100% sold and units still for sale - clearly the result of people flipping units over to the 'greater fool'.
I can be foolish on my own time, and I wasn't interested in giving my money to someone to prove it.
My best (and luckiest) calls in this respect are the ones I didn't make a dime on, and would have been likely to lose much if I had done something. I don't put that down to knowing what a bubble is, but knowing that if it doesn't pass the sniff test for me, it's just not worth investing.
Again, that doesn't mean my views should inform policy on how to deal with a perceived bubble. It just means if I know it when I see it, I stay away.