Market euphoria can cloud judgment from "summary" of Irrational Exuberance by Robert J. Shiller
When investors become overly optimistic and caught up in the excitement of a booming market, their judgment can become clouded. This euphoria can lead them to make irrational decisions based on emotions rather than sound financial principles. They may overlook warning signs or downplay risks, believing that the good times will continue indefinitely. Market euphoria can create a herd mentality where investors follow the crowd without critically evaluating their decisions. This can result in bubbles forming, as prices become detached from underlying fundamentals. Investors may justify high valuations by pointing to past performance or the belief that "this time is different." However, history has shown that markets tend to revert to their mean over time. During periods of market euphoria, investors may ignore the importance of diversification and risk management. They may concentrate their investments in a few hot sectors or chase after the latest ...
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