BUBBLES

“One man’s bubble is another man’s growth stock” Murray Stahl

“At the root of all financial bubbles is a good idea carried to excess” Seth Klarman

"Logical-seeming rationales play a part in most bull markets... All bubbles start with a modicum of truth"  Howard Marks

"The only way you get a bubble is when basically a very high percentage of the population buys into some originally sound premise and - it's quite interesting how that develops -originally sound premise that becomes distorted as time passes and people forget the original sound premise and start focussing solely on the price action" Warren Buffett

“Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception." George Soros

“In simple terms, financial bubbles, driven as they are by human folly, are often the result of too much money chasing too few worthy ideas, leading to overinvestment and excess supply” Frank Martin

“It’s an oversimplification – but not a grievous one – to say the inevitable hallmark of bubbles is a dearth of risk aversion” Howard Marks

"I would be reluctant to think that men will ever be smart and farsighted enough to avoid the next bubble unless man's basic greed can be excised.  We know wars are not good, but they seem to be a permanent staple of humanity.  Why not bubbles?" Paul Tudor Jones

“A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street (a community in which quality control is not prized) will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest” Warren Buffett

"A good working knowledge of the history of bubbles can also help preserve your capital"  James Montier

“The psychology that allows bubbles to form always break, sometimes on a dime” Seth Klarman

“To avoid losing money in bubbles, the key lies in refusing to join in when greed and human error cause positives to be wildly overrated and negative to be ignored. Doing these things isn’t easy, and thus few people are able to abstain” Howard Marks

“The euphoria in human nature takes over when the economy is expanding for several years, leading to bubbles, and these bubbles cannot be defused until the fever breaks” Frank Martin

Bubbles blown large enough inevitably pop. And then the old proverb is confimed once again: “what the wise man does in the beginning, the fool does in the end” Warren Buffett

"When people live in a balloon, they tend to shy away from the guy holding the needle" Sam Zell

"There are two cornerstones to a bubble.  The first is price momentum; the second, wide discrepancy between price and value"  Marathon Asset Management

"This is what happens in manias - people wilfully forget inconvenient facts like arithmetic"  Scott Fearon

“When I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational." George Soros

"I don’t ever want to profit from a bubble. Soros does that, that is just not my game. I don’t profess any ability to understand how long a crowd will buy into a bubble. I invest in things that appear to be compelling values that continues." Li Lu

"From painful past experience I have learned that bubbles can get bigger and last longer than I can imagine"  Barton Biggs

"I know that bubbles have always happened and they always look the same, it is the damnedest thing.  People always say the same things in bubbles: "This new technology is going to change the world," or "You don't understand what is going on, you old fogey."  All those same things have been trotted out in every bubble in history, whether it is commodities, tankers or bonds.  People always get just as hysterical.  The smart money always loses money shorting them because they cannot comprehend that it could go as high as it does"  Jim Rogers

"A bubble can be identified partly based on nosebleed valuations, but a bubble is also behavioural.  When prices are rising simply because they have been rising, when people on the sidelines are drawn into speculation because they can't stand their friends and neighbours making what seems like free money while they themselves are not, the market maybe entering bubble territory.  In the words of fames economist John Kenneth Galbraith, "A bubble comes from rising prices, whether of stocks, real estate, works of art or anything else.  A price increase attracts attention and buyers, which results in even higher prices" Seth Klarman

"What I've learned is that bubbles last a long time, and that there's money to be made out of bubbles.  The main thing about bubbles is that you need to be early.  The worst thing you can do is to be stubborn and then late to convert" Colm O'Shea

"It's excruciatingly difficult to figure out when bubbles are going to burst.  They have a nasty tendency to last much longer than even the most experienced, patient student of financial markets and crowd psychology can believe.  Bubbles always flow from powerful substance so it's the rational being taken to the irrational to the mystic.  Valuation and overbought technical metrics invariably signal the bust far too early"  Barton Biggs

"All bubbles result from megatrends and the excess focus on the demand side of the equation, with little reference to management quality and the supply side, is usually the great error made by investors" Marathon Asset Management

"The belief that some fundamental limiter is no longer valid - and thus historic notions of fair value no longer matter - is invariably as the core of every bubble and consequent crash" Howard Marks

"Giant bubbles are easy to spot statistically but hard to call from a career risk perspective. It is easy to be early, and being early may lose you your job, your clients, and your credibility.   Every major bull event is called a paradigm shift but they almost never exist.  Almost never.  But not never, ever.   In 1999 we presented 28 major bubbles of the past and were able to call the score: Mean Reversion, 28; Paradigm Shift, Nil!" Jeremy Grantham

"In many ways, mania participants suffer from acute cases of historical myopia.  They only look as far back as the first days of their particular bubble and assume the older ways of living or doing business have now been rendered permanently obsolete" Scott Fearon

"When an asset class is very popular in all layers of the financial system and when it is purchased without to the risks imposed, we can begin talking about a bubble"  Francois Rochon

"The problem is that in bubbles attractive" morphs into "attractive at any price." People often say, "It's not cheap, but I think it'll keep going up because of excess liquidity" (or any number of other reasons). In other words, they say, "It's fully priced, but I think it'll become more so." Buying or holding on that basis is extremely chancy, but that's what makes bubbles. In bubbles, infatuation with market momentum takes over from any notion of value and fair price, and greed (plus the pain of standing by as others make seemingly easy money) neutralizes any prudence that might otherwise hold sway.  To sum up, I believe that an investment approach based on solid value is the most dependable. In contrast, counting on others to give you a profit regardless of value, relying on a bubble is probably the least" Howard Marks

"Since time immemorial, the financial markets of the world have been prone to bubbles in everything from tulips and art to shares and houses.  Therefore, obviously it is very important for investors to understand them.  All bubbles start as powerful fundamental developments and legitimate investment opportunities.  They become bubbles or manias or whatever you want to call them when investors in their euphoric optimism project future results, not based on rational fundamentals, but on continuation of past results" Barton Biggs

"When a bubble finally bursts, the so-called fallacy of composition comes into play and inflames mob psychology.  This theorem says that, in a crisis, the action that is rational for each individual is irrational for the group as a whole and creates a disastrous outcome" Barton Biggs

"Asset bubbles, where investor mania drives prices to extreme heights, are a recurring puzzle for investors.  Can you profit? Can you avoid major losses?  In my experience, it has been easy to spot a bubble after it is well under way, as prices and valuations far exceed historical norms and seem to have no economic sense. .. Making a profit is trickier.  Like a Ponzi scheme, it is not easy to tell when it will end. If you bet too early you can be ruined in the short run even though you are right in the long run." Ed Thorp

"What I want to remind you to remember is that bubbles burst in the wake of hysteria, while plummeting prices usually end in panic" Jim Rogers