There were bubbles in the 1600’s when the Dutch Stock Market was way overbought on tulips. The bubble was huge and many people sold their possessions to get in. In the end, the bubble burst and the panic set in. Selling was fast and furious and fortunes were lost.
This is the cycle that seems to repeat itself over and over again. The patterns can be big and obvious, like the above tulip situation, or they can be less obvious, as in the daily fluctuations in stocks. Aren’t they just mini bubbles of demand after all?
So the problem is that when things are going up, everyone wants in. Some people will sell and make a profit before the bubble bursts. Others will miss their chance and either have to sell on the way down and hopefully not lose everything, OR they will not get the memo that things are falling apart and will lose a lot.
So, if you want to be a successful investor, then you need to understand and know how to take advantage of bubbles.
Someone is going to profit and someone is going to lose. This is similar to gambling of course. Players (investors) are relying on their skill to play a bubble properly. But no one can predict it out with absolute accuracy every time. Unless of course, they are controlling the bubble, but that is a different story.
This is the human nature part. Obviously, the real value of tulips, if there is such a thing, doesn’t really change. Instead, it is the way that humans treat their value that changes. Greed is an aspect of human nature. If you want to win in the environment of bubbles, you need to understand this nature to a greater, not lesser degree. Tricky? You bet it is!
Perhaps it is better to try and be spiritually wise than to gamble with material possessions or money? You tell me. Gordon Gecko says, “Greed is good”. No one accuses him of being a good guy though. What are your thoughts?
NOTE: this post speaks in general terms and you should seek out professional advice (or help) before taking any risks.
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