Mental Models: Play and Understand Stock Market Bubbles: #68

Mental Models Podcasts predicts that this historic and unprecedented bubble will crash by the second quarter of 2021. Bubbles are driven by narratives. Bubbles have an end but timing the end of the bubble is unknown, which is the risky part, and very different than sports betting. Predictors are, volatility, age tilt, issuance, market cave, and acceleration. How do you understand bubbles...visiting with historical features of bubbles, academic literature, lessons learned from Saberpoint Capital’s review, biases, and looking forward into 2021. Robin Greenwood, Andrei Shleifer, and Yang You (2017) observed the period of 1926-2014 identified 40 different bubbles, suggesting bubbles are not that common. The four main findings are presented on pages 2-3 in Greenwood, et al, paper based on Eugene Fama’s work, see Link https://doi.org/10.1016/j.jfineco.2018.09.002. [Eugene Fama (academic papers listed below)] A SPAC investment is a Special Purpose Acquisition Company (SPAC)”created solely to merge or acquire another business and take it public”, this is often a cheaper option to a PO (public offering). Biases to be aware of are optimism and fear of missing out that could push your towards the bubble. For more on best investing strategies, avoiding bias and learning about your brain BUY 5 star reviewed book “Understanding Behavioral Bia$” on Amazon - link here: http://amzn.to/2XHtsOE Continue to listen to Mental Models Podcast to avoid the biases that are keeping you from making a profit in the market. Stay safe and healthy out there! Fama’s Academic papers: Fama, Eugene F., 1965, “The Behavior of Stock-Market Prices,” Journal of Business 38, 34-105. Fama, Eugene F, and Kenneth R. French, 1992, “The Cross-Section of Expected Stock Returns,” Journal of Finance 47, 427-465.
Fama, Eugene F, and Kenneth R. French, 1997, “Industry Costs of Equity,” Journal of Financial Economics 43, 153-193.
Fama, Eugene F., 2014, “Two Pillars of Asset Pricing,” American Economic Review 104, 1467- 1485.