Speculative bubbles are inherent in the financial markets from "summary" of A Short History of Financial Euphoria by John Kenneth Galbraith
Speculative bubbles are inherent in the financial markets. Periodic surges in asset prices are a common occurrence throughout history. These bubbles are driven by a collective belief in the sustainability of rising prices, leading to increased speculation and investment in the asset. The initial price increase may be based on fundamentals, such as strong economic growth or innovation, but it soon surpasses any reasonable valuation. As prices continue to rise, more investors are drawn into the market, fueling further speculation. The euphoria surrounding the asset creates a self-reinforcing cycle of buying and price appreciation. Rationality is replaced by greed as investors overlook warning signs and continue to pour money into the asset, convinced of its infallibility. Eventually, the bubble reaches a tipping point where reality sets in and prices begin to fall. Panic ensues as investors rush to sell off their holdings, causing a rapid decline in prices. The bubble bursts, leaving behind a trail of financial ruin for those who were caught up in the mania. Despite the inevitable consequences of speculative bubbles, they continue to occur in financial markets. The allure of quick wealth and the fear of missing out on lucrative opportunities often cloud investors' judgment, leading to repeated cycles of boom and bust. It is a timeless pattern that reflects the inherent irrationality of human behavior when it comes to money and investing.
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