Friday 30 October 2009

Of Pins & Bubbles

Of Pins & Bubbles

A pin lies in wait for every bubble and when the two eventually meet, a new wave of investors learns some very old lessons. - Warren Buffett

Considering the credentials of the Guru from Omaha, I can't take the chance of disagreeing with the sage all the time.

As enough number of investment gurus have pointed out, bubbles will keep getting formed as long as naive investors are floating around on this planet.

As long as bubbles are in existence, pins will keep searching for them.

On every such occasion when the two meet (I mean the pin and the bubble), inevitably the bubble will burst.

The whole process goes on somewhat along the lines suggested below:

  1. The smart investors would have got in there first, ahead of the rest
  2. The naive ones would have kept observing the bubble, denying its ever-expanding nature and refrained from getting in
  3. Unfortunately, just a few hours / days / weeks before the pin meets the bubble, our naive friends will go right ahead and invest in the bubble, convincing themselves that the bubble "Is different" this time around!
  4. And, pray, whom did these naive investors buy the bubble components from?
  5. Of course, from the Smart Investors referred to in (1) above!
  6. And, the Pin meets the Bubble

Moral of the story:

  • We can't do much about bubbles
  • We just need to learn our lessons from pins meeting bubbles
  • And aspire to become "smart investors" well in time to greet the next bubble.
  • And be smart enough AND fearful enough to get the hell out before the next pin meets the next bubble!

Happy investing!

Regards,

N


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3 comments:

Ahsan said...

nice resourceful content

Mr. N said...

Thanks for your nice words. Hope you'll enjoy my other articles also! Mr. N

sumi said...

Really enjoyed reading this post. Lovely style of writing.

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