Anatomy of a Bubble

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Psychology | March 14th, 2011

John Hussman, a very bright fundamentally driven investor, offers views on bubbles.

Is this time different? No one knows and trying to figure it out may be fruitless. Why not just follow whichever way it does go…

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Chuck

Part of being a trader is deciding what market(s) to trade. It’s hard for even the best trend follower to make money in sideways markets and I’ve seen estimates that on average, markets are only in a trend 30% of the time. Fundamentals can be useful in choosing markets for further attention where unstable conditions may provide the foundation for a trend. This is not the same as trading on fundamentals. You shouldn’t pick the trend and take a position ahead of time. But it can be helpful to have some idea of what to watch.
http://www.topbreakoutstocks.com Trader Ken

If you want to miss out on the biggest money making opportunities (which often occur during bubbles/crashes) then yeah, choose markets based on fundamentals.
DG Dye

Ditto Trader Ken…George Soros called gold the ultimate bubble, and then proceeded to buy it. He was blasted for his “contradition.” But there is no contradiction: Soros understands that a bubble is an opportunity to MAKE money, NOT to step aside.
Larry

Chuck, however if you trade enough markets, there is always a breakout somewhere…
Michael David Rubin

Still fairly new to the game, I find browsing some of the brighter “fundamental” thoughts just relieves my old, indocrinated drives to “learn” about markets.
I can even watch Jim Cramer (I think – haven’t in a couple years) for the entertainment fun, or some of the lovely & bright ladies for their male/inspirational effects on my psyche.
Leaves me freer of subliminal distractions while getting my system figured out & adjusted, objectively, going forward.
So far, bubbles seem totally cool, though maybe especially hazardous to new guys without enough capital for broad diversification.
Michael David Rubin

By the way, didn’t Jim Rogers (in his “Hot Commodities,” some years back) talk about commodity vs. stock cycles alternating approx. every 17 yrs.?
Does every rise & fall of a price group = a “bubble?”
The beautiful thing is that, as Mike & others remind us, it’s a label, semantics…
Chuck

@Larry
You’re absolutely right, in theory. In practice, I don’t have infinite capital, so I m forced to make choices.
Trender

Quote: “… I’ve seen estimates that on average, markets are only in a trend 30% of the time.”

all these estimates 30%, 15%, etc. are just nonsense. It all depends on your choice of time-frame.

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Books & Film by Michael Covel

- Trend Commandments Aggressive-take-no-prisoners trend following manifesto. Buy & holders might weep.
  
  Purchase | Reviews
- Trend Following Classic trend following bestseller with 100,000+ sold & now in 10+ languages.
  
  Purchase | Reviews
- The Complete TurtleTrader Nurture trumps nature in Wall Street's greatest rags to riches trading story. Bestseller #2.
  
  Purchase | Reviews
- The Little Book of Trading Behind the scenes part narrative & part interview in the spirit of Market Wizards.
  
  Purchase | Reviews
- Broke: The New American Dream Covel's directorial debut: trend following meets the financial crisis. Winners tell how (DVD).
  
  Purchase | Reviews

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Michael Covel serves as president of Trend Following™, a privately owned research firm. His trend following books include The Little Book of Trading (2011), Trend Commandments (2011), The Complete TurtleTrader (2009, 2007; bestseller), and the classic Trend Following (2009, 2007, 2005, 2004; bestseller). Covel's books have been translated into 10+ languages. His first film, a documentary, is Broke: The New American Dream (2009). Learn why.

Books & Film by Michael Covel

- Trend Commandments Aggressive-take-no-prisoners trend following manifesto. Buy & holders might weep.
  
  Purchase | Reviews
- Trend Following Classic trend following bestseller with 100,000+ sold & now in 10+ languages.
  
  Purchase | Reviews
- The Complete TurtleTrader Nurture trumps nature in Wall Street's greatest rags to riches trading story. Bestseller #2.
  
  Purchase | Reviews
- The Little Book of Trading Behind the scenes part narrative & part interview in the spirit of Market Wizards.
  
  Purchase | Reviews
- Broke: The New American Dream Covel's directorial debut: trend following meets the financial crisis. Winners tell how (DVD).
  
  Purchase | Reviews