
Ask HN: Are we in a bubble? - csomar
I remember back in 2012-2015 there was all this talk that the tech sector is in a bubble. Lots of speculation. Nasdaq at that time was 3000-5000<p>Now Nasdaq is sitting around 7400. Many people have already left the market last year thinking assets are over priced. But we are still going higher.<p>Chart: https:&#x2F;&#x2F;imgur.com&#x2F;a&#x2F;tNVwc<p>So... Are we in a real bubble? Is everyone adamant to that fact? Isn&#x27;t this bubble getting huge, scary and could possibly wreck fortunes and companies?
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AnimalMuppet
Let's start by defining "bubble".

A financial bubble isn't just "asset prices are going up". Asset prices can go
up because the fundamentals for the asset are good. For example, stocks can go
up because earnings are good. They can also go up because bond interest rates
are low, and so 4% return on stocks is now a good return.

Then next stage comes when people start buying an asset _because the asset are
going up_ , rather than because the fundamentals are good. That's the start of
a bubble. It's not yet a _dangerous_ bubble, but it's becoming a bubble. (It's
dangerous to those who invest in it, but it's not dangerous to the economy as
a whole.) And of course, people buying into the asset cause the price to rise
further. So _more_ people see that the price keeps going up, and buy in
because they want to make money. So the price goes up some more. That's a
bubble - the price is rising because people are buying, and people are buying
because the price is rising.

The dangerous stage comes when people start buying the asset _with borrowed
money_. This is dangerous because, when the bubble pops (and it always does
eventually), people will lose money that they don't have. This can destroy
banks, not just individuals. When it destroys banks, it can threaten the
economy as a whole (think 2008, or, worse, 1929).

So: _Are_ we in a bubble? I'm not sure that we are in the Nasdaq, _given
current interest rates_. I'm not sure that the price is totally disconnected
from the fundamentals. We could be in a bubble, though.

One metric I'd be interested it, but don't know how to get my hands on: How
much borrowed money is invested in the Nasdaq (or S&P 500, or the Dow)? How
does that compare to historic values?

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nostrademons
By comparison, here's the NASDAQ from 1989-1996, when it went from 400 to 1000
over just 5 years:

[https://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chd...](https://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=828133200000&chddm=671760&chls=IntervalBasedLine&q=INDEXNASDAQ:.IXIC&ntsp=0&ei=5O1mWpCbEYHVjAGewLHIBA)

And then over the next 5 years, from 1996-2000, when it went from 1000 to
4000:

[https://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chd...](https://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=949093200000&chddm=485826&chls=IntervalBasedLine&q=INDEXNASDAQ:.IXIC&ntsp=0&ei=5O1mWpCbEYHVjAGewLHIBA)

The short answer to your question is yes, we are in a bubble. We are _always_
in a bubble, somewhere. You can usually tell where it is by looking at
whatever people are really excited about, and it lasts as long as they
continue to be excited, which inevitably is not forever. You can't usually
tell when people are going to cease to be excited, which is why timing the
tops of bubbles is a fool's errand. It's up to you how much risk you want to
take - because _everything_ is a bubble, you can't actually opt out of the
game, but you can choose to protect yourself by investing in things that
people are unlikely to get significantly more or less excited by. You miss out
on the vast majority of gains across the overall market by doing this, though.

It's sort of a metaphor for life: we're born, we grow rapidly, at some point
we get boring, and then eventually, with 100% certainty, we die.

~~~
kevindqc
Those links just point to real-time NASDAQ :(

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SirLJ
Frankly I don't care, I make money on the way up and on the way down (using
stock trading robots), the only years I am losing money are at the bottom
(before going up again), so since we are on the way up, I am confident I'll be
making money this and maybe next year for sure...

