Jas Jain on Bubbles And Idiots

Date: Tue, 27 Nov 2007 08:11:21 -0800
From: Jas Jain

Bubbles And Idiots (Among Speculators or “Investors”)

Human behavior is highly predictable.

The Bubble phase of any asset class lasts for 1.5-3 years. Smart people get into an asset class way before the bubble phase begins. Idiots get really enthused and interested after the asset class has entered the bubble phase.

Here is identification of idiots among speculators:

• Heavily into and bullish on Tech Scams during 1998-2000
• Heavily into and bullish on Residential RE during 2004-06
• Heavily into and bullish on Commodities during 2006-07

The super idiots are the ones who moved from one bubble (Tech Scams) to the next (RE) to the next (Commodities) over the past ten years.

With the benefit of hindsight, I was way ahead in identifying bubbles and idiots who speculated in Tech Scam and RE. Let us see if I prove to be correct in the case of commodities, because I know idiots who got really interested in commodities and have been heavily speculating in them.

Idiots are great at finding justifications for why the bubble is not a bubble and the price rise is based on fundamentals.


Jas