Why Market Booms Are Unlikely to Be Bubbles

Focusing attention on a few big crashes in financial history ignores the base rate for bubbles. In simple terms, bubbles are booms that went bad, but not all booms are bad. Crashes that gave back prior gains happened only 10% of the time. Market prices were more likely to double again following a 100% price boom.
— William N. Goetzmann

William N. Goetzmann is Director of the International Center for Finance at Yale School of Management and has studied market bubbles more intensely than almost any other person alive today.

He has found that bubbles are rare and that market booms are more likely to continue booming than they are to bust.

The most important thing a financial historian can tell investors about bubbles is that they are rare. Indeed, any discussion of bubbles quickly turns to history because recent evidence is lacking.
— William N. Goetzmann

This is one reason Howard Marks advised us in a recent My Daily Oracle that, even though stocks have reached INVESTCON 5, it may still be safer to remain invested than it is to pull your money out.

You can read a free, quick and fascinating summary of Goetzmann's findings in this paper, "Bubble Investing: Learning from History," which he published in 2016.

Even more interesting is his bestseller, Money Changes Everything: How Finance Made Civilization Possible.

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