Mutter writes a thoughtful post on “Bubble Riders” on unexpectedutility.com He points out that as much as investors want to think that they can ‘time’ the bubble (i.e. exiting at the max), psychology works against them. Those that manage to get out at the top are probably simply lucky while many more might fool themselves into staying in. He points out that greed and overconfidence may cause investors to value an asset as worth more than it really is, to ignore or mis-read warning signs, and instead of exiting on a profit stay in for the decline. Mutter relates this scenario to behavioral finance principles of loss aversion and reference points.
To read the post in its entirety, click the link below: