Market Bubbles Quotes

I put forward a pretty general theory that financial markets are intrinsically unstable. That we really have a false picture when we think about markets tending towards equilibrium.

The possibility that stock value in aggregate can become irrationally high is contrary to the hard-form "efficient market" theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by "rational man" models of human behavior from economics and too little by "foolish man" models from psychology and real-world experience.

Financial markets have a tendency to go to excess.

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

The generally accepted view is that markets are always right -- that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I start with the opposite view. I believe the market prices are always wrong in the sense that they present a biased view of the future.

Markets do very weird things because it reacts to how people behave, and sometimes people are a little screwy.

Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.

In the financial markets I find it easy to predict what will happen and very difficult to predict when it will happen. I think that things were clear during the bubble as to what would happen eventually.

Fear and euphoria are dominant forces, and fear is many multiples the size of euphoria. Bubbles go up very slowly as euphoria builds. Then fear hits, and it comes down very sharply. When I started to look at that, I was sort of intellectually shocked. Contagion is the critical phenomenon which causes the thing to fall apart.

You can go back to tulip bulbs in Holland 400 years ago. The human beings going through combinations of fear and greed and all of that sort of thing, their behavior can lead to bubbles. And it may have had and Internet bubble at one time, you've had a farm bubble, farmland bubble in the Midwest which resulted in all kinds of tragedy in the early '80s.

Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict.

Most investors give too much credence to the theory that prices are rational; they presume that a market collapse must have been justified by serious economic trouble.

But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

Bubbles and crashes are textbook examples of collective decision making gone wrong. In a bubble, all of the conditions that make groups intelligent - independence, diversity, private judgement-disappear.

I think bubbles are things people see with 20/20 hindsight. If you look at any particular period where prices go up and then they go down, you will always find people who predicted that they would go down. Those are the people you pay attention to.

I would say that financial markets are very inefficient, and capable of extremes of being completely dysfunctional.

I've always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly - that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum.

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.

Next time, please pay a fair price for the services you depend on. Those have a better chance of surviving the bubbles.

For us, whether the market is skewed from a bubble perspective or not really is mitigated by staying focused on what we do best.

Every bubble has two components: something - some real trend, and a misconception about that trend.

Sometimes markets err big time. Markets erred when they gave America Online the currency to buy Time Warner. They erred when they bet against George Soros and for the British pound. And they are erring right now by continuing to float along as if the most significant credit bubble history has ever seen does not exist. Opportunities are rare, and large opportunities on which one can put nearly unlimited capital to work at tremendous potential returns are even more rare. Selectively shorting the most problematic mortgage-backed securities in history today amounts to just such an opportunity.

In a rising market, enough of your bad ideas will pay off so that you'll never learn that you should have fewer ideas.

News media stimulate bubbles, since stories about them boost their audience.

Having spent 10 years studying emerging markets, I know that you have patterns repeated over and over again. A bubble is like a fire which needs oxygen to continue... when you see there is no oxygen, things change.