When I hear debates about whether there is a tech-bubble, or a real-estate bubble, I think “everything is a bubble” in some way.  I don’t mean this as an investment strategy. I’m expressing doubt about the utility of calling out the existence of bubbles.

Markets and free-will ensure bubbles are common and unavoidable. Depending on what level you look at, you can find bubbles anywhere.

Markets by definition have a multitude of bubbles in them. People place bets on the value of stocks going up. Others bet on the value going down. Stock prices are not a perfect indicator of the value of anything: people invest based on their prediction for the future, not the present.

But predictions for the future include our assessments of other people’s predictions of the future, which makes any market a network of speculations built on top of other speculations. This is fragile and prone to feedback loops. Feedback loops generate dramatic rises and falls. Widespread optimism about something can fuel years of investing in something that never pans out, and markets are dominated by optimists about markets.

Many investors love bubbles provided they get in on them early, and get out before they burst. They care nothing about “real” value. They are investing to profit, and don’t need “real” value to profit, but only the stock price to go up.

Here are some examples:

  • The sun is going to explode in a few billion years. This makes the earth, and our civilization, a bubble. We will not be here forever. Our certainty about the human world is unfounded. We know we take for granted many things that are not certain or are guaranteed to change for the worse for us. The human species is likely a bubble in the history of the universe.
  • Some believe our consumption economy is not sustainable. That at some point we won’t have the resources to produce or buy the kinds of goods that make up much of the world economy. If this is true, the entire economy is a bubble. Which means a bubble in any domain is is really a bubble (domain) on a bubble (entire economy) on a bubble (human race).
  • We are all going to die. We behave mostly as if we will live forever. Our lives are bubbles. We live in denial of the great uncertainties of when and how we will die. On the day people die, their families are surprised to learn how much unfounded security they placed in something that disappeared instantly, and possibly without warning.
  • Relationships are bubbles. Most of them end. Two people are good friends for a time, then lose interest in each other. If you created a stock price for each friendship, you’d seem them rise and fall. If you moved or took up a new and annoying religion that alienated your friends, you’d see a ‘friendship bubble’ burst, and your stocks drop.

The challenge isn’t identification, its timing:

  • If bubbles are easy to find, the challenge isn’t identifying them: it’s predicting when other factors will force those bubbles to burst. Bubbles can last for years, decades, or in the case of dinosaurs, millennia. So what if you see a bubble: that doesn’t necessarily mean anything.
  • Awareness of a growing bubble means little, unless you know when the bubble will end.
  • Macro-economics do not define micro-economics: A bubble can burst in an industry, but the strongest players may still do well. A bubble can rise in another, and the weakest players may still struggle.
This is why articles making an argument for the existence of a bubble are empty to me. What do you think?
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13 Responses to “Everything is a bubble”

  1. GTRyanA |

    What goes up, must come down. The law of gravity applies not only in physics, but also in many philosophical ways.

  2. Tynan Sylvester |

    I don’t agree with this. It’s a semantic argument, but I’ll make it anyways (since your post is really about a word to begin with).

    A bubble is not just “something that will end” due to some physical limit of time, energy, or space. As you noted, this definition means so much that it means nothing.

    A bubble is a kind of growth where expectation builds on expectation, leading to a disconnect from physical reality and eventual pop. It’s very specifically focused around intelligent agents (people) responding to expectations of each others’ expectations.

    The only one of your examples that might fit that is the relationship (which, I must say, is potentially a very interesting comparison). It’s the only one involving intelligent agents and expectations.

    But human lives – a bubble? I don’t agree that this is a fruitful comparison or even metaphor.


    • Scott Berkun |

      I’m not sure I agree with it either – that’s often why I’m writing something :)

      Working with your definition:
      >A bubble is a kind of growth where expectation builds on expectation, leading to a disconnect from physical reality and eventual pop

      Lets take Eastern Island as an example. Growth there built on expectations (We will always have more land and trees), which was disconnected from reality, and led to ‘pop’, or extinction. I’d bet there were people on the island saying “our economy is a bubble that can’t last”.

      I admit crossing from markets to species extinction stretches any argument thin, but I’m trying.

      • Greg Linster |

        An economic bubble, in my opinion, simply refers to a market where there is a good with an inflated market value. When a bubble is about to burst it’s because people start to realize that the good is grossly overvalued, i.e., its’ market value exceeds its’ intrinsic value.

        I’m not really sure how your examples relate to the economic definition of a bubble.

        • Scott Berkun |


          My point is if you take a wide enough view, all goods have inflated value. It’s all a layer of bubbles on top of bubbles. To say there is a bubble doesn’t mean much, unless you can predict when it will burst.

          Maybe that’s a ridiculous point to make, but I’m making it.

          I don’t believe stocks trade at intrinsic value ever. Unlike buying an apple, where you are buying something to eat it, we buy stock based on our prediction for the future. The stock market is speculative – its a bet on the future. And in any market, its also a bet on other people’s bets on the future.

          This means anyone can profit from bubbles. Bubbles often generate great swells in certain parts of the market. The ridiculous pricing of companies that earn little profit is fueled by people’s sense that other people are are investing in it, and will continue to, regardless of any intrinsic reason to do so.

      • Tynan Sylvester |

        I think Easter Island is different.

        There, it’s “I expected this to continue forever and it didn’t (so I died)”

        In an economic bubble, it’s “I expected the next guy to expect the value to increase even more, and he didn’t (so he wouldn’t buy it at more than I did).” Here, your expectation is _not_ an expectation of something physical, but of a future expectation by someone else.

        It’s only when expectations rest on expectations that the link from reality can be cut almost completely. An expectation of a physical event can be wrong, but it can’t be chained together with other such predictions.

        Even your apple example in reply to Greg is instructive. An apple only has value if you predict you’ll eat it. If it turns out to be rotten, that prediction was wrong, but it wasn’t a bubble. But when you buy a stock, you’re predicting someone else will predict that a third person will want it even more.

        Regarding intrinsic value of stocks, I saw a Robert Shiller lecture where he explained that the value rests on the value of all future dividends. A stock that promises that it will never pay dividends has no value; we only buy them because we think they might in the future (or we think someone else will think so). And dividends have real value because you can trade them for apples. Just to put that in there are part of the intrinsic value discussion.

        Sorry for the long reply.

      • Tynan Sylvester |

        Thinking for a minute more, I believe that the core of what you’re saying is that everything we value is transitory, and that in many cases you can’t tell when they’re going to end. And of course, you’re correct. And there are interesting implications here. I just disagree with calling these “bubbles”.

        I mean, if you take a wide enough view, everything is worthless is meaningless because the universe will die of heat death. As a dude said, in the long run we are all dead.

    • Balaji Iyer |


      I read and admire your ability to organize your thoughts on most things, first time responder though.

      Human life is indeed as effervescent as a bubble – I took Sanskrit language lessons when I was younger and remember reading an anology : human lives as floatsam in an ocean that come together for a brief while before departing its own way. Taught me to respect my time and love others in this wonderful yet short duration of our lives.

      I am a software program manager and often pull out your books and articles for experience and motivation ( the sanskrit word for this is manthan : to relive the gist of an experience ) .

      I hope to follow and learn from your work as I vicariously live parts of my professional and personal life through the lens of your experiences !

      Thanks for the good work that you are doing in sharing your thoughts and experiences. I know it takes courage to put some of your mind’s workings out there!

      Cheers !

  3. Robert Breedlove |

    The term “value” is explicated in denominations of currency which is innately speculative in our economic system. Not only does our currency possess zero intrinsic value beyond its constituent material, but it is born out of debt – at interest to the issuing authority. It seems that “bubbles” are inherent to nature (all is an unquantifiable collection of quantum foam) but the severity and rapidity of economic “bubbles” are due to the confidence centric medium of exchange known as money.

  4. Lester Burnham |

    Scott, I really enjoy how your brain works. Maybe (likely) because it works so much like mine. We all have an ego to maintain, right?

    The bubble analogy is perfect in at least a few ways. First, after all (as you more or less point out), we are simply particles of matter on the surface of an enormous bubble called the “big bang”.

    The physics explaining bubbles adds to the analogy, since a bubble is only kept together by a complex and mostly mysterious set of rules that we call “surface tension”. Hmmm, just like an atom, a family, a community, an economy… even maybe a planet or a galaxy?

    What I think you’re saying, in so many words, is that we often forget to pay tribute to our precious systems by acknowledging that they are but amateur parodies, dime store novellas, of our innate and primal knowledge of the terms of existence.

  5. Robert |

    Hm, I just have a different definition of “bubble”. To me a bubble is artificially inflated, a hype, an exaggeration beyond most people’s common sense. And in that meaning of “bubble”, I do hope not everything is a bubble.

  6. Deepak Shenoy |

    A few lessons I’ve learnt about bubbles and stock markets:

    - There are bubbles nearly all of the time. If the stock markets are down, gold may be at crazy peaks. Crude oil may be hitting insane levels. Some online website that allows you to connect with other people could be trading at a P/E of, what, five times AAPL.

    - Speculative mania is human behavior, and the extent of the bubble is only available in hindsight. Hey, even Greenspan said “irrational exuberance” in 1996, when the real bust only happened four years later.

    - The trader doesn’t necessarily care about the value created, just about when he got on and off. Towards the end of a bubble, everyone’s a trader on an adrenaline high. The more astute approach may be to follow the trend: I’ll miss the beginning and I’ll lose a little off the end as I get out on a “retracement”.

    - You don’t want to predict, you want to react. Prediction is nice as an ego booster, but the market is supreme in giving you returns. So you predict in private and hope it doesn’t cloud your opinion and make you get out too early.

    - A bubble, like greed, is good. It channels investment. Some people say that is wrong, that investment could have been better allocated. But it isn’t. That money doesn’t even exist without that bubble in place, and people don’t “allocate better” in non-bubbly times, they just don’t allocate at all. And the overinvestment makes stuff available cheap when players go bust and sell at rock-bottom salvage-deal prices.

    - Bubbles make people rich. Those very people come back and decry the next bubble. Some attribute their success to skill when it might just be sheer luck. This is human nature, so listening to someone’s bubble-warnings just because they got rich is folly.

    Just my 2[sub-currency].

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