Bubble-up and bubble down

In any economic situation, it is subjected to the typical bubble-up and bubble-down pattern which can be reviewed as followed:-

(a) An asset value begins to rise due to some underlying, real economic drivers that begin to boost demand and therefore the price.

(b) As the asset value begins to rise, investor psychology begins to rise as well, leading to some investor speculation about the future value of the asset.

(c)Investors become even more interested in owning the rising asset, pushing up the price.

(d) More and more investors take notice and want to buy in before the asset price rises even further.

(e) As the bubble approaches its peak, some investors become anxious about future growth and sustainability, which leads some investors to increase their profit taking (selling the asset).

(f) Other investors take notice and become anxious or at least do not feel as positive about owning the asset, also deciding to sell.

(g) The asset price no longer rises and begins to decline.

(h) Positive investor psychology is increasingly replaced with neutral or negative investor psychology, sparking a larger sell-off.

(i) A critical level of negative investors psychology is reached, a mass exit begins, and the bubble pops.

(j) Most people cannot exit quickly enough and much of their assets go to money heaven.

A note by Wiedemer in The Aftershock Investor