Excess enthusiasm in asset prices spans a wide range: there is overly bullish sentiment, mispricing, overvaluation, speculative excess, booms, manias, and frenzies.
And then there are Bubbles.
People throw that word around far too easily; a bubble is a relatively rare event, and not something that occurs annually. We see bubbles only once every few decades.
Consider the infrequency of historical bubble peaks occurring:
The Tulip Mania (1637, Netherlands)
The Mississippi and South Sea Bubbles (1720, Britain and France)
The Railway Mania (1840s, Britain)
The Florida Land Boom (1920s, USA)1
The US Stock Market Crash (1929, USA)
The Japanese Asset Bubble (1989, Japan)
The Dot-Com Bubble (2000, USA)
The Global Housing & Credit Bubble (2008-09)
I want to avoid the Justice Potter Stewart 1964 test for obscenity: “I know it when I see it.” Instead, I created a real-time checklist. But you can discern the broad similarities in all of the above. Those bubbles all followed similar patterns:
Technology: A new innovation (railways, internet, crypto, AI) gets commercialized;
Capital: is widely available for speculative uses;
Leverage: Credit is cheap and plentiful and widely used;
Narrative: A compelling and seductive story rationalizes high prices;
Psychology: The media reports on, then amplifies, reckless behavior;
Herd: The contagion spreads, leading to widespread participation.
Not every bubble is identical, and some will have more of this than that. But they all seem to more or less adhere to this pattern.
The combination of mass/social media and the financialization of modern economies seemingly leads to more frequent bubbles. There were unquestionably three major bubbles across three decades: The Nikkei (1980s), the Dotcoms (1990s), and the GFC (2000s).
But not every act of speculative excess is a full-blown bubble:
Speculative excess
The Canal Mania (1790s, Britain)
Nifty Fifty (1960s, USA)
Bond Bull (1980-2022, USA)
The Bitcoin & Crypto Booms (2015-ongoing)
The SPAC and Meme Stock Mania (2020–2022, USA)
The ESG / Green-Tech Bubble (2018–21, Global)
Market Concentration (2020s, USA)
Artificial Intelligence (AI) (2024-ongoing, USA)
For the record, I don’t know if Bitcoin/Crypto or AI is a bubble – yet. They both seem to follow the pattern referenced above, but neither checks off all the boxes on my real-time bubble list.
I like Cliff Asness’s concise definition of bubbles: “No reasonable future outcome can justify current prices.”
When was the last time the crowd, the media, or Wall Street accurately identified a bubble in real time? By definition, it takes a crowd to drive prices to bubblicious levels. It is a challenge for the crowd to simultaneously speculate on a bubble and accurately identify one as it inflates.
I recall doing a CNBC hit with Peter Boockvar in 2006; we each discussed different aspects of what we saw as a bubble in credit and subprime mortgages, and why we were worried about mortgage-backed securities (MBS)—and how profitable and reckless securitization had become. The anchors literally laughed at us live on air.2 People were very skeptical that any kind of a bubble was in the making, especially as stocks continued to rise. (Are you smarter than the markets?)
What would or would not make this a bubble?
Price spikes in individual companies with only tangential relevance to AI are worrisome; so too would another +25% for a third year in a row. But if we start hearing other (non-AI) companies discuss on their earnings calls the cost savings of implementing AI, and how they have increased their efficiency, seen revenues and profits rise, that could justify the stock prices we see today. This is consistent with Vanguard’s Joe Davis’ take on “idea multipliers” — the two-step implementation of new technologies. The chart (at the top) reflects several factors, including low interest rates, but do not overlook technology, automation, and improved efficiency, all of which make companies more profitable.
Bubbles are by definition rare; elevated prices are not. It is very challenging to discern the difference—not that the difficulty has ever stopped people from trying…
UPDATE October 29, 2025
Goldman Sach‘s chief global equity strategist, Oeter Oppenheimer, put together a timeline that looks similar to the 6 step bubble pattern above:
Previously:
RealTime Bubble Checklist (October 16, 2025)
The Magnificent 493 (August 12, 2025)
All Time Highs Are Bullish (June 26, 2025)
A Spectacularly Underappreciated 15 Years (April 28, 2025)
__________
1. The Florida building boom was driven in large part by added railroad access from the Northeast to Southern Florida. For more on this, see Christopher Knowlton’s “Bubble in the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression.”
2. True story, ask Peter…
