Beware of the Bubble

“A Nation Which Forgets Its Past Has No Future”

Those were the words on a 20-foot-long banner that “Mr. Slick”, my high school history teacher, kept carefully pinned across the width of his classroom for the entire four years I had classes with him.

“That makes no sense at all”, I thought to myself when I first read it at age fifteen. “The past is just a fuzzy black-and-white era, with big crude steam-powered factories and tragic wars with brutal low-tech weapons. The future is a land of ever-glossier technology and a peaceful society like the one I’m sitting in today.”

It was only gradually over the next thirty years that I have come to realize what Mr. Slick’s banner was really getting at. And now I can see that the wisdom really was worth 20 feet of classroom space, and its implications are big on both your own bank account and our entire world at large. Because what the banner really says is this:

Don’t be an Ass: Learn from the Past.”

Human nature never changes, so we are bound to repeat our past mistakes. Unless we are smart enough to see the seeds of these same mistakes in our present – and not repeat them.

Read the big books (and podcasts) that cover the longer arc of history. Or at least learn from our elders who are still around to teach us right now.”

The good news is that you can put this lesson to work immediately, because we are living through one of these moments right now. I can tell because of the number of people asking questions like this:

“Hey MMM, I know you’re an index fund investor, but what do you think about Gamestop? And Crypto? I see these things shooting sky high and I’m afraid of being left out! Should I invest?”

Meanwhile, the financial news, which should be a boring place of board appointments and dividend adjustments, has started sounding like a thriller written by a budding novelist who is still in high school. Among the recent stories:

A bunch of kids on Reddit have formed a gang called “Wall Street Bets” to manipulate stock prices in an ongoing series of pump-and-dump schemes. Just like the golden era of financial gangster activity of the 1920s that helped cause the Great Depression!

Last time this happened, we learned from our mistakes. And in 1934, the Securities and Exchange Commission was created to help regulate stock markets, making things like price manipulation and insider trading illegal.

But this obvious clash with previously accepted laws has been strangely absent from most of the financial reporting. The SEC is out of style now, and it’s popular among certain crowds to disparage it – perhaps in part because of an example from a certain role model.

Instead, we get positively framed interviews with the boyish CEO of the Robinhood stock trading app, telling us that this behavior is good, because it’s coming from the little guy.

“We stand in support of you, our customers,” Robinhood co-founder Vlad Tenev tweeted. “Democratizing finance for all means giving more people access, not less.”

Right – finally, we can fight back against the crusty Wall Street Elite and play the stock speculation (and manipulation) game on a level playing field!

Similarly, the chunks of computer data known as “cryptocurrencies” continue to receive widespread hype and religion-like devotion from their fans, coupled with mouth-foaming anger towards anyone who disagrees with the idea of placing speculative bets on their future prices (myself included). To Crypto fans, you are either with them, or you “don’t get it.”

They neglect the obvious and most important third option, an absolutely critical piece of perspective that any expert in any field, including investment, has in abundance: “I might be completely wrong on this.”

A true expert learns the big picture, researches all sides of an argument, and adopts a humble perspective. Experts put their energy into further learning and living by example, rather than participating in Twitter battles.

Real Investment Doesn’t Make Exciting News Headlines

To people who lack the perspective of history, this current fad seems exciting and perhaps like the “new normal”. You simply open a stock trading account and grab a crypto wallet and then just quickly get yourself rich by placing wild bets on recent fads and doubling your money every month.

The people playing this game are calling themselves investors, but in reality this whole situation is just the age-old game of stock speculation based on price momentum – which is in turn just another form of gambling.

Stock speculation is a shittier version of actual long-term investing, which we’ll cover in a minute: with speculation, you get massive highs and crushing lows. You can end up a millionaire or bankrupt, and the main separator between these two is your luck.

When you combine the results of all stock market participants and average them out, you get roughly the index performance. But speculators will tend to pay higher tax and transaction costs, allowing index fund investors to pull ahead.

Further compounding the hazards, the people who are the lucky side of this teeter totter (for example, people currently holding all their wealth in Tesla stock or the cryptocurrency or NFT of the day) will tend to attribute their success to skill, which leads them to become ever more confident and double down without realizing the preposterous risks involved.

Congratulations Jason! As someone who retired 16 years ago at age 30, I’d suggest some diversification. Why bet everything on such a volatile rocket ship, when you’re already set for life many times over?

They trumpet their success to the world, while those who have lost money tend to remain less vocal. When the tide inevitably goes out, the “winners” are stuck standing naked in the mud, and they lose a large portion of the gains because they failed to diversify and lock them in.

Because of all this, there are currently a series of giant, stupid bubbles forming in the financial world that nobody except the elders seems to be brave enough to question. And it leads to the following cycle of natural human behaviors, which everybody falls into – except, if we are lucky, those of us who have seen it all before.

The Bubble Hype Cycle

Even as a big fan of Tesla’s engineering accomplisments, I scratch my head at all the ongoing “analysis” of its stock price, which seems like just a random number generator.
  1. Somebody decides they think the price of something should go up. They share their story of why it should.
  2. This story catches on and gains influence, so people start buying the object and the price really does go up.
  3. Other people notice the “great performance” and pile in as well. They believe and reinforce the origin story from #1 above.
  4. The more this happens, the more it keeps happening. The stakes have become very high for people holding the trinket now, so they reinforce their beliefs with religious zeal (and personally attack anyone who disagrees with their thesis.)
  5. Newspapers document this circus with no skepticism at all, which lends it credibility. This leads even more people to pile in out of a fear of missing out.
  6. As earlier expectations are exceeded, the experts make up new, plausible reasons why this new price is justified instead of just admitting that it’s a bubble.
  7. Eventually, the cycle ends and everything comes crashing back to the ground. Anyone who was smart enough to sell does well, everyone else loses.
  8. Most importantly: the net effect of all of this bubble behavior was mostly just redistributing money from later buyers to earlier buyers.

So What’s the Alternative?

The alternative to speculation and riding on bubbles, is investing. And while I was discussing the difference on a walk with my son today, he came up with a really neat analogy:

A stock speculator is like somebody who notices the weather is warming up in March, and that the trend continues and even accelerates April and May. By August they have sold their winter coats and boots and are fiercely accumulating bikinis and flip-flops, shouting to everyone that you an’t seen nothing yet, this trend is just getting started!

An investor is somebody more seasoned. They have been through this all year after year, decade after decade, and thus they know what comes after summer. Therefore, the investor selects a portfolio of clothes that serve a purpose. Some of these garments deliver warmth in winter, others are great for the beach, and all of them with a timeless style and durability.

To put it another way: an investment is something that delivers value to you (and preferably does some good in the world as well), and produces products, services and eventual dividends that would make it worth holding for a lifetime even if you were never allowed to sell it.

And as a side note, a crypto speculator is somebody who says that the whole idea of “fiat clothes” is obsolete and we should be collecting shiny plastic frisbees instead. So they devote their entire salary to accumulating those, and neglect clothing altogether. When the fad catches on and the shiny plastic frisbees go up in price, they take this as vindication of their “investment” theory.

Then they go on Twitter and demand that Mr. Money Mustache apologize to his followers for telling them that speculating on future frisbee prices is not a good idea.

Just Keep Calm, and Keep Investing

Despite all of this hype and all the froth in stock prices, a true investor’s plan can remain stable through the seasons. I know a crash is coming eventually, but as mentioned in my pretend-forecast about an Impending Recession, I also have no idea when it will be.

And even when a crash comes, you never know how long it will last. One year ago, world stock markets collapsed in a great Covid-era panic. I conducted a Twitter survey to see how long people thought it would last. A full 75% of us thought it would be at least two years until stock prices came back. Being an incurable optimist, I guessed one year myself, and the correct answer was even faster: five months.

But again, I could also have been completely wrong.

You can never predict exactly which way the wind will blow, when bubbles will pop, or even which currently overpriced companies will eventually grow into their valuations. The only thing you can be sure of is that financial history runs in cycles just like the seasons, and you’ll do just fine if you keep your closet full of sensible clothes, and get out there and enjoy them on a daily basis.

Further Reading:

Last month, NPR shared nicely reasoned take on the betting mania, as they often do when the rest of the world goes crazy: Gamestop Mania likely won’t happen again. Here’s how to invest wisely.

  • Matt March 29, 2021, 7:51 am

    A great, timely, article.

    I’d like to add a perspective I don’t see voiced much within the FIRE community. Investing into low-cost, highly diversified index funds and holding for the long term is obviously the smart thing to do. It’s also very boring. Some people (myself included) like to invest in stuff that is a bit more exciting, hence all the buzz around /r/wallstreetbets and crypto. Exciting for sure but the trouble is that it’s speculating not investing. So I’d like to do a shout out for investing seed capital into start-ups. I don’t mean through P2P bonds or Kickstarter or anything like that, I mean meeting the entrepreneurs, listening to their stories, their plans, seeing where they’ve got too through bootstrapping and so on, then maybe investing in them and their idea. It’s high-risk, so exciting, but what I really love about it is that even if I lose all my money (quite likely so I only use money I can afford to lose), I’ll have contributed something by investing in a risky idea and giving some young people a chance to turn their great idea into reality. You get to go along for the ride and watch a small company grow into something bigger, and of course there’s always the chance you can make many many times your money back. I humbly submit that if you’re seeking a bit of investment related excitement then as an alternative to pure speculation it’s a better choice.

  • Mathias March 29, 2021, 9:25 am

    I only invest in index funds. For me, I consider this the art of doing nothing (no trading). That’s not easy, you have to train it :)

    And also, even if I don’t invest in bitcoin. Those who do count on things like expensive video cards, asics, infrastructure, energy,… to make it work. And they buy all that stuff from companies that are in those index funds. Those companies make money now from it, even if bitcoin is history someday.

  • PHILIP SCOVIS March 29, 2021, 11:15 am

    “…those who have lost money tend to remain less vocal.”

    No, I hear from these folks all the time. Usually in the form of “No, I don’t have a 401(k), because investing is risky and/or a fixed game. I lost all my savings in an employee stock plan back in 2000. Learn from my mistakes!”

    Usually followed by “The government needs a plan to help the poor middle-class in retirement”.

  • Rebecca Kraut March 29, 2021, 11:19 am

    What do you recommend re “Read the big books (and podcasts) that cover the longer arc of history?” Thanks.

    • Nick March 30, 2021, 12:28 pm

      The Bible

      • Ms Blaise March 31, 2021, 1:25 am


        • Nick March 31, 2021, 9:07 am

          I know how that came off, but I am actually completely serious. I don’t know of any more exacting depiction of human nature. To be more precise, I recommend reading Proverbs and Ecclesiastes, which are known in Jewish and Christian culture as the books of Wisdom. “There is a time to laugh and a time to cry”… “There is nothing new under the sun”… “Hope deferred makes the heart sick”… “Money earned hastily is easily lost, but hard-earned money continues to grow”. Also, regardless of whether it is intended to be literal or figurative, I think the Book of Genesis is an enlightening history of humanity with lots of lessons to be learned: Noah’s ark was the original “Big Short” and I think the Tower of Babel is the story of our time…

  • nward March 29, 2021, 4:13 pm

    You have a lot to read up on in regards to Wallstreet Bets, they’re not some kind of pump-and-dump gang at all. Not even close.

    • Mr. Money Mustache April 6, 2021, 7:52 am

      Not just pump and dump, but from what I’ve seen so far, the subreddit is based at least substantially on the idea of stuff like momentum trading and technical analysis, leverage and options and all sorts of other stuff that get most people into trouble (even while some get lucky at it).

      As I’ve been suggesting in this blog for about ten years now, your long-term odds are better with just buy-n-hold index fund investing, and ignoring the markets and individual stocks. Then using the vast amount of freed-up time to turn off your computer and learn new skills, meet new people, and improve your physical fitness. The money part will take care of itself, it’s kind of the easiest part of life if you live in the US or a similarly rich country.

  • RAF March 30, 2021, 12:23 am

    “An investment is something that delivers value to you (and preferably does some good in the world as well), and produces products, services and eventual dividends that would make it worth holding for a lifetime even if you were never allowed to sell it.”

    Like some others, this quote really resonates with me. As does this article as a whole and so much of MMM’s experience and insight. And I agree with nearly every premise in this article. So it’s with irony that I realize most of my current investment portfolio is tied up in the very people, ideas, and assets he argues against.

    I might be completely wrong on this, but I worry index funds have become a speculative bubble. Precisely the Bubble Hype Cycle MMM describes has poured record amounts of capital into index funds that then drive them up in a self-fulfilling loop. There is $4.3T in passive index funds, as of 2019, which is more than double what it was just a decade ago and more now than in actively managed funds. I worry the FIRE crowd, among others, could have effectively made it a bubble. I worry the FED, Treasury, and Congress with these semi-precedented experiments may have effectively made it a bubble. I worry we are all abdicating our responsibility to properly allocate capital. Which is part of what has drawn me to Bitcoin and to Tesla and to Cathy Wood. (For comparison, Bitcoin is about $1T, Tesla $600B, and all of the ARK Invest funds $40B.)

    But in many ways, for me it’s more the “do some good in the world.” Even when I still expected index funds to continue to do well, I couldn’t bring myself to invest much in them. Most are filled with companies I’m indifferent toward or even dislike. I want to be part of something I believe in with every dollar I invest in. I’m far from perfect in that. And my social consciousness is always evolving. But it’s a goal I strive for.

    When I invest in Tesla, I like to believe I’m helping reduce traffic fatalities, make transportation cheaper and more efficient, and reduce carbon emissions. Inspire others. Make cool stuff. Push the edge of what’s possible.

    When I invest in ARKK, I feel like I’m supporting disruptive innovation and a company whose principles and approach I admire.

    When I invest in ARKG, I hope I’m playing some part, however small, in eradicating cancer, reducing suffering, and improving the human condition.

    When I invest in ARKF, I dream of a world where everyone can freely exchange money, build wealth, and invest in whatever people, organizations, or assets they believe in. Just as we Mustacians have the privilege of doing today.

    When I invest in BTC (and other crypto), I cast my vote against central banks and censorship.

    One of the great things about freedom and capitalism is each of us gets to choose what we support. These are some of my choices, but I don’t pretend they are for everyone. And what I support with my speech and money will no doubt continue to evolve over time as I learn and grow.

  • Nick March 30, 2021, 12:28 pm

    While I agree with the conclusions of this article, I find it funny that MMM is lecturing about what it means to be a “true investor”. Putting all your money in index funds like VTI as MMM has championed is not investing – it’s still speculation. Investing requires fundamental analysis of the businesses you are investing in. Passive index funds are for people that are not interested in being informed investors. They settle for average returns given average risk. They should realize that just because ‘average’ meant 4-8% in the past, it says nothing of future market earnings. My recommendation for anyone that truly wants to be a good steward over their hard earned dollars is to ditch passive index funds and learn all they can about value investing. Finally, just as someone doubling their money in a year is not evidence of investing skill, it is also not evidence of ignorance. This volatile market with so much passive money has created lots of opportunity for scrupulous investors.

  • ken smith March 30, 2021, 3:27 pm

    The crypto thing – I use to not want to invest in it and had the same viewpoint. It may drop 60% in this cycle like it has in the past cycles when a surge happened and then finds itself higher in a couple years after. I do not see it going away. I see it keep moving forward with volatility but mostly likely will continue to climb higher and higher. Something has shifted as well with it – lots of institutions involved in it. Lots of retailers putting a small part 1-5% of portfolio in it. I didn’t want to touch it before but now have put some some in and will continue to DCA into it. More and more adoption. Most likely US based EFT’s will add and once that happens more and more people will have some exposure. Big funds, institutions, investors are going to snap as much as they can because there is finite supply. Some of the alt stuff I don’t think will do much but a few of the major players my follow with Bitcoin – ETH, ADA most likely. My opinion but at this point with it – it is not going away and will keep growing but expect volatility – it is just too big of train now. We have to stop denying it and how mainstream it is becoming.

  • Pat Murphey March 30, 2021, 6:07 pm

    Humility is an important skill, and being able to say one is wrong about a investment is wrong. Many are wrong about bitcoin, whether they want to admit it or not. If you would have just added 2% to your 60/40 portfolio and rebalanced quarterly your average ROI goes from 7% to 9%. Bitcoin also has a Sharpe Ratio of 1. It may not seem so due to its high volatility. That is minimal risk for such a large return.
    Money/ownership/stocks are all human constructs. If one says bitcoin does not have value because it is not backed by anything they are making a fools argument. Bitcoin is backed by the largest decentralized computing network in the world, and math. The USD is backed by the government (politicians). I am not saying you should go maximally into btc or crypto, but to not have some exposure at this point seems very speculative, and risky.
    Ethereum on the other hand will be used to settle many contracts in the future. It will get rid of bloated institutions with middlemen asking for fees just for breathing. Remember efficiency is beautiful, and what is more beautiful than democratizing and automating processes that free up people and lower cost. Of course I could be wrong, but that is why I am diversified ,and not overly weighted into stocks, bonds, or a way of thinking.

  • Ms Blaise March 31, 2021, 1:27 am

    Thanks for this article. A timely reminder to keep plugging away at the good habits and that there is no cheats option. Note to self to eat my veggies too.

  • German March 31, 2021, 4:49 am

    I came here to see the Bitcoin investors lose their sh*t, and they did not disappoint. Thanks for a great article and a fun comment section, MMM.

  • Curious March 31, 2021, 5:48 am

    What do you think the stock market/economy/society would look like if every investor just did index fund investing? I guess there would still be competition between companies to get customers to buy from them but it would be even across the board on the investing side, right?

  • Greg March 31, 2021, 6:22 am

    Thanks to everyone here for perspective. Over 30 years ago I read “The Only Investment Guide You’ll Ever Need” by Andrew Tobias. He advocated for index fund investing at that time and I followed that religion…having retired at 58 (now 62) and now living pretty good. Along with his thoughts on index funds was a lifestyle perspective that I found valuable. We all should ask ourselves “how much is enough” or “what do I truly need” to be relatively happy with our circumstances. While watching market fluctuations and bitcoin opinions on a daily basis may be entertaining for some, I find comfort in basic index fund investing for long term, laddered CD’s for short term (ten years)needs, elimination of debt and enjoying my free time each day, unencumbered by the need to worry about investing for the unknown future. Cheers!

    • Mr. Money Mustache March 31, 2021, 10:49 am

      Right on, Greg! And that’s the biggest thing that I sometimes forget to share after 16 years of retirement:

      Although I write these articles about money and investing, and I follow the field fairly closely because it happens to fun, I don’t really think about it at all when it comes to my own life. Because my needs are modest and they are easily met. Heck, even if I didn’t have a dollar in investments, I could maintain a 50% savings rate on my part-time carpentry hobby alone!

      So, there’s no need to stretch or gamble or try to manipulate the markets in the hope of getting unsustainable levels of investment returns. In the long run, we will all average out at roughly the rate of GDP growth plus dividends, which add to maybe 7%. And that is MORE than plenty to just retire, hang out with your kids and friends, and go for a nice walk in the forest, and have the odd bottle of champagne in a hot tub as well ;-)

  • jeff mcconnell March 31, 2021, 7:00 am

    I had a dissenting view on this articles premise, which got moderated out.

    i hereby declare this site an echo-chamber. Too bad because i enjoy most of the content

    • Mr. Money Mustache March 31, 2021, 10:44 am

      Hey Jeff! Sorry to hear about your previous comment – I only log in once every few days to read/approve them but I couldn’t find any earlier ones from you. It was not moderated out.

      In case anyone is curious, I do delete any comments that are harsh/angry or contain personal attacks, as well as those that seem to be written in haste without reading the article first and all the other comments. You’ll find that many dissenting opinions are in this comment stream.

      I think the ideal way for anyone to make a dissenting argument is to phrase it as a respectful question.

      For example, “I see your point about X, but what do you think about the following table of actual data on the Fed or Census or CDC or NHTSA or whatever website, which seems to indicate that your point might be better stated as “Y”?

  • Joe B March 31, 2021, 2:42 pm

    A couple of years ago I bought 5 shares of Tesla. Last year I bought my first new car ever…a Model Y at the age of 40. I felt guilty but I paid off my mortgage at age 39 and sold two of my cars in trade for a nice down payment. It’s been a great car and in that time Tesla stock split and gained even more ground. Instead of waiting for the bubble to burst, I decided when my gains reached $10,000 I would sell some of my shares and put it to pay off a big chunk of my remaining loan. I did just that and I’ll have my 6 year loan paid off in under 2 years. In the meantime, Tesla shares have dropped about 22% so it made me feel a bit more reassured with my decision. My family really enjoys the car and I get to take advantage of 100% free electricity at my job and a couple of neighboring free chargers. Hopefully the car will treat me as good as I treat it. The majority of my portfolio is VTSAX mutual funds which have really done well for my children’s investment accounts which were started the day I got their SSN soon after they were born.

    • Joe B March 31, 2021, 2:44 pm

      FYI I felt REALLY guilty betraying the general guidance I’ve consumed over the years from MMM but maybe one day you’ve give me your blessing ;)

      • Mr. Money Mustache April 6, 2021, 8:04 am

        Haha, yeah Joe that sounds like a totally appropriate amount of self-questioning for a decision like that. And I AM jealous of your car.

        As I often write on this blog, you don’t have to be perfectly rational or efficient in your decision making in order to still get way ahead financially. You just have to think about things at least a bit, and put up a wall of resistance before making each purchase. In other words, try to be at least SLIGHTLY less ridiculous than average.

        This mindset is generally enough to cut out at least half of our impulse purchases and streamline the more mundane stuff like recurring bills, and cutting the average person’s spending in half will change their life trajectory from “being able to retire at 70 or maybe never”, to “full financial independence sometime in your 30s or 40s”. Which is good enough.

  • Impersonal Finances March 31, 2021, 3:56 pm

    There’s no question we’re in a bubble with some of these assets, particularly NFTs. Though I have probably been looking too much into them–I do think the top pieces will retain their value somewhat. It’ll be the Pets.com NFTs that will collapse. Identifying junk from treasure is not for me though–I don’t know crap about art.

  • Heath March 31, 2021, 5:13 pm

    I have read this a few times over and I think there is another side to the story. A lot of the people sucked up in this wouldn’t be interested in investing at all otherwise. After they learn the hard lessons when the bubble goes pop a lot of folks will be scared out forever but a lot of folks will dust themselves off, see what they did wrong and learn to invest responsibly. More responsible investors in the pool is good for all of us.
    In the meantime, I don’t like blackjack, roulette, or sports betting but I do love stock charts and playing the volatility has been profitable enough that I have taken my original investment out plus a little extra and am still playing with the house’s money. If folks are going to burn it down, I’m going to warm my hands by the fire.

  • Doug March 31, 2021, 9:19 pm

    I don’t understand this idea of stock speculation based on price momentum and never will. What you need to do is go on a buying blitz when stocks are on sale like they were last year. Now fast forward to more recent times when values have recovered nicely you sell off some stocks and take profits. That’s especially important if you bought on margin, use those profits to pay down any margin debt.

    Here’s a comment I posted on another blog: You need to invest like an engine with a governor. When the speed drops, the centrifugal flyweights drop down, which pulls on the linkage to open the throttle. The more open throttle allows more fuel/air mixture to be drawn into the cylinders on the intake stroke. That greater amount of fuel/air mixture, when ignited pushed the pistons down with more brute force during the power stroke. That greater force is transferred to the crankshaft, and results in more output of torque and mechanical power. Similarly, like the governor, if stocks drop in value you should buy more while they are on sale. In the opposite extreme, like going down a steep hill in low gear and the speed is too high the governor closes the throttle, the fuel injectors are continuously shut off, and the engine absorbs power and acts like a brake. Again, like the governor you respond to high stock values by selling some off. Ridiculously simple, isn’t it?

  • Gary Grewal April 5, 2021, 11:18 pm

    Such a timely and authentic entry MMM. Couldn’t have said it better about the self-proclaimed experts on Tesla, Crypto, or NFTs. Confirmation bias or any other bias for that matter truly clouds judgement, and the current market environment is definitely creating FOMO among veteran and rookie investors alike.

    If anyone has watched Crashes and Crises: Lessons from a History of Financial Disasters by Professor Fullenkamp, it’s a great reminder about what MMM is saying here, they call them economic cycles for a reason and history tends to repeat itself.

  • FOX ROCKEFELLER April 6, 2021, 1:30 pm

    I’m curious why the topic of “shorts” has escaped this article as well as the responses. So you’re calling communication on reddit hype or even “price manipulation” but in fact this is no different than a rich person seeing a company with a problem and shorting it except they involve their other rich friends and then bankrupt a company. It’s clear you haven’t been following what is really happening or you would see the obvious. DTCC has implemented over 100 pages of rules recently to curb this over-leveraged shorting without any kind of disclosure due to Write-puts etc. It would take me hours to explain to you what I’ve learned in the past 3 months due to GME blowing the hedgefund into seeking Billions from their friends. This was NOT manipulation this was buying something we wanted to stick around while knowing it was 140% of the float….And we’re manipulating stocks? How do you figure this shorting is ok even NAKED SHORTING but having a community to discuss investments or pokemon cards is in any way wrong? *I would love it if you simply read some of this stuff that is actually causing this “bubble” you speak of. This is NOT your average every 10 years bubble and the USA stock market will never be the same.

  • Student of Liberty April 7, 2021, 4:24 am

    I like your freesbee analogy. Mine was a box of monopoly with a simple rule of cash distribution: the first guy completing a round gets half the money in the bank, the second gets the remaining half, the third another remaining half, etc….
    After a while, the remaining half is so frustratingly low that newcomers cannot get much money once they complete their round. Thankfully, the first players who are loaded with bitscams set up a brokerage platform and sell them against the evil US dollar to anybody who wants them.
    They won’t buy them back though because they do not have enough dollars now that the price of the bitscam has gone up.

  • Brian C April 7, 2021, 8:37 pm

    Well said. We are clearly living in a moment of market euphoria. Investors of all stripes are taking increasing risks and being incredibly complacent about their downside scenario. Only time will tell if this euphoria will last for another week or another decade.

    While I am a big fan of index investing, most index investors have had a new risk come up in their portfolios that hasn’t been an issue until recently.

    The big tech names have grown so large so fast that Apple, Microsoft, Amazon, Facebook, Tesla and Google make up ~25% of the S&P 500 index. Think about what will happen to your index if tech goes out of fashion (maybe an anti-trust action?).

    I think it’s safe to say that your standard S&P 500 index is no longer well diversified. The “Total Market” funds are only marginally better. This is most closely similar to being invested in the Nasdaq in the late 90’s.

    There are different ways for index investors to mitigate this risk without getting super complicated. But it is something you should take into consideration.

  • Greenbacks Magnet April 10, 2021, 10:21 am

    I have heard a lot reported in the news lately about Gamestop and the Wall Street Bets on Reddit. It’s just noise. I ignore all of it.

    When you hear about how Hollywood actors in 2021 are doing 200M Ponzi schemes, then you know they are not paying attention to the past. History shows us that these people go to jail. Let’s not forget about the zillion years they gave Madoff and Enron. History often repeats itself.

    Therefore, my response to those people is to emulate Benjamin Franklin. He was a frugal investor who played the long game. He also died one of the richest men in America at the time.

    My personal investment style comes from the story of The Tortoise and the Hare. Slow and steady wins the race. That is how I became a 401(k) Quarter of a millionaire. No tricks and no gimmicks. Just consistent investing over time. Paid of $50,000 of debt and then started investing that $700-$800 bucks instead.

    Just my 2 cents.


  • Skippy April 11, 2021, 11:39 pm

    I *really really* want in on this ‘gambling’ investments. I figure if I hang out where all the other muppets like me also get their gambling news from, I’ll be able to play the game if I don’t get too greedy. Obviously it’s a lot more complicated than that, but TBH it’s probably not a lot smarter.

    However while I like excitement, I won’t be completely stupid with it. Half of my normal investment money is still going to index funds, along with half of whatever profits I make by gambling. I will not top up the gambling account beyond its assigned contributions though. That would be even dumber…

    Any thoughts?

    PS my normal thought process is extremely analytical. Once I figure out up from down in the day trading market I’ll be doing my due diligence on any stock I buy.

    • Drew C April 13, 2021, 1:19 pm

      You must think everyone is just doing it wrong huh?

      It’s your money, you might get lucky, you might even play it smart- but there’s always someone smarter, bigger, better than you. The proven track thus far was laid out by Bogle and rehashed here by the likes of MMM.

  • JC April 12, 2021, 6:55 am

    My dad always tells me: “When your Uber driver starts giving you stock tips, you know we’re in trouble.”

  • IGMR April 13, 2021, 3:10 am

    This is hard, investing is hard. Psychology is efeything and you must pick the risk level witch serves your goals. Sure, you an place all your money on black or GME. Mabye youll get lucky but the risk of failing is pretty big. If FI, FIRE is important – invest in a way that will support your goal and increase the possibility that you succeed.


  • SirThisIsACasino April 13, 2021, 4:39 am

    Hi MMM. Thank you for this blog and for encouraging us along our FI journeys. While I think you raise good points about bubbles and crypto, there is a competing narrative that deserves attention, too.

    Without question, the crypto space is an unregulated mess and the VAST majority of these projects will probably fade away. But in the same way you implore us to learn from history, there are other patterns happening here as well. Look no further back into history than the early 1990s. The internet was just getting started and it ushered in the information age, creating a shit ton of wealth for investors. Show me a VC that was around in 1995 and I’ll show you someone who made millions of dollars many times over. Crypto currency and blockchain may turn out to be tulips. Or it may turn out to be something a big and transformational as the internet. Nobody knows for sure – and that includes me, you, and everyone else.

    But I do think pointing to all the innovation happening around blockchain and calling them “recent fads” feels a bit dismissive. I like what you said about how “a true expert learns the big picture, researches all sides of an argument, and adopts a humble perspective.” I can’t help but feel like that notion is missing from your blog post.

    There was a brilliant essay written several years ago by a prolific investor named Naval Ravikant. His very first line is something like: “Okay crypto nerds your time has come. There is a very small chance you are about to make a whole lot of money.”

    Naval was right. They made a shit ton of money. And he’s actually even more right today than he was 5 years ago.

    My point is that nobody knows what will happen with crypto/blockchain. And that includes you. A lot of the people paying attention to this space are smart and thoughtful with lots of humility. And yes, they’ve lived through plenty of bubbles in their careers. So while this may very well turn out to be a bubble that goes to zero, it just might also be the next huge transformational shift for humans and society in general. We all saw it happen with the internet just 25 years ago. I think it’s important to learn from that sort of history, too.

  • Jen April 13, 2021, 8:56 pm

    Great read and brought me back to reality! In our family, I manage the nest egg. My husband not only does not know what an index fund or an ETF is, he also cannot explain the difference betweek a stock and a bond (not kidding). Hence he was happy to leave it to me and my boring index investments. Over the last few months, however, he became a “crypto enthusiast” – started watching loads of YouTube videos pouring a part of his salary to cryptos. He also asked me to “buy some Tesla” and mentioned something about ARC, now I recall. When I object, he says that I am not keeping up with the times. MM now reminded me that this is the classic bubble mentality. Let’s see what happens! I am not worried about the $, as we are already FI and I am retired – my hubby only works full time because he likes it. I don’t want to be right – sure hope he will be able to tell his grandkids how he became a crypto millionaire :))

    • Mr. Money Mustache April 15, 2021, 9:21 am

      That is a perfect example Jen, and thanks for sharing!

      When I hear from crypto enthusiasts, they are almost always people who watch these youtube channels and read the echo chamber of supportive websites. And there is an almost universal disdain for things like fractional reserve banking and the Federal reserve / Treasury system of fiscal and monetary management. As if you can become an armchair critic of this very complex (and so for the past several centuries rather effective) system after just reading a few Reddit posts!

      To me, a valid cryptocurrency enthusiast would display the following traits:
      – a full financial degree and experience working in the very core of the monetary system
      – a full computer engineering background, specializing in security and cryptography. To have a valid opinion on the value of cryptocurrencies, you should have the skills to *code your own from scratch*.
      – a lifelong enthusiasm of reading books about the existing monetary system so you understand the alternative.
      – an openness to NEW cryptocurrencies which solve the problems of energy consumption, transaction speed, ledger size, stability in value over volatility, and a non-deflationary monetary supply. In other words, it is illogical to become attached to Bitcoin over any other option, unless your goal is just to make money through speculative appreciation.

      • Chris B April 15, 2021, 1:30 pm

        Isn’t it funny how gold is sold the same way?

        I honestly think a lot of fed-skeptics, dollar-skeptics, bank-skeptics, goldbugs terrified about “fiat”, etc. knew zero about each of these subjects before they ran down the social media rabbit hole. They never learned how things actually work before they decided that things don’t work or will collapse tomorrow. I guess repeating other people’s slogans feels smart to some folks?

        AliExpress will ship products to you in exchange for Somali shillings, Zimbabwe dollars, or Afghan afghani (a government that will almost certainly collapse later this year!) but they won’t trade for crypto. Are they behind the times?

  • Kade April 15, 2021, 7:31 pm

    I’m really late to this.

    But I wanted to point out that a lot of people bought GME not as an investment, but as a way to hurt hedge funds who were heavily shorting the stock in order to irrationally drive down it’s price. For those people, GME purchases (so long as they only invested a small amount of money they know they can lose, didn’t expect a return on investment, and knew there was a decent chance they would lose the money) are perfectly rational. It actually is a kind of policing function which could prevent excessive speculation by bigger players and be good for the market.

    Obviously, many people have horrifically conflated that activism with an investment strategy. I hope they encounter your blog and learn that buying and holding index funds is far superior as an investment strategy.

  • UKinvestor April 16, 2021, 6:51 am

    I read Irrational Exuberance back in ’07 and the commonalities to the Mississippi Bubble was wild, they even had their own versions of NFT’s! And this was back in the 1700’s!!

    Still saying that after reading How To Own The World – I put 10% aside for risky/speculations largely so I wouldn’t muck about with the remaining 90%. This 5k at the time grew to 20k in about 6 months then back down to 1.5k over the following 12 months!

    My theory was institutions would get involved bringing in large amounts of capital so I stayed invested and even topped it up with another circa 5k as my other investments increased. That 6.5k then ballooned to 110k! But I can not describe how stressful it was some days I’d make 13k+ over night! That’s over a years annual savings!

    I felt like I was holding a bag of coins that was constantly growing in size, but inside the bag was also a bomb that grew with the bag and I had no idea when it would go off! To reduce the risk I stopped filling investment pots elsewhere and began building cash, eventually I sold off circa 90k majority and converted the rest into alt-coins now they are approaching 100k! At which point I’ll likely sell the majority again or at the end of May. That or the bomb will go off first!

  • Pravin April 19, 2021, 10:58 pm

    I am very angry on myself. Why did i not find this blog few years ago..Thank you soo soo much for each blog, learning a lot from you.

    Can I ask for quick help. I wont consider it a financial advice.

    I have just started investing and invested around 10k into aaple, fb, amazon and msft recently. They are doing good. I now want to invest around 200K which i received by recently selling some land. My choice is VTSAX.

    I know theories have proved then lumpsum is better than DCA. But I am skeptical about the bubble. Hence if i do following, you guys thin its fine..

    50K now and 50K in 6 months and then 100K next year in 3 installments? So that if a bubble indeed is burst somewhere in the middle I will be between a full lumpsum and full DCA.

    anything wrong with this?

  • Jared Stopford April 27, 2021, 4:36 am

    Crypto is betting whether blockchain technologies will replace the current centralized economy. With your background on wallstreet, I would suggest reading on the capabilities of decentralized finance protocols and how much more efficient they are at matching supply and demand. ECM, DCM, leveraged finance, sales & trading, insurance, etc are all real business models that COULD be replaced. It’s obviously a bet but it’s similar to betting on interest companies in the mid 1990s.

    • Mr. Money Mustache April 27, 2021, 7:54 pm

      Right – EXCEPT that the success of blockchain technology as a commerce tool still offers no justification for the price of any particular coin to be going up. An ideal currency is stable, and not considered a place to make money by buying and HODLing. Money itself is not an investment, it’s a tool to allow us to *make* investments.

      • BH April 29, 2021, 5:22 am

        Ideally, a currency would be a stable (over the short term) but over the long term it would also be a store of value (e.g., it would not be eroded inflation). Investors are concerned that the USD and other currencies do not currently offer a store of value and so they are seeking other alternatives – I personally do not understand or trust Crypto but I do understand why investors are searching for alternatives to parking their money in fiat currencies. I agree with you that Crypto is probably not the answer – but I don’t think the USD will provide a store of value over the long term.

        • Mr. Money Mustache June 2, 2021, 12:37 pm

          And this point gets into the age-old debate of the role of money supply and inflation in an economy, also known as the Keynesian versus strict Monetarist philosophies.

          I still agree with the most recent 50 years philosophy that a small amount of inflation is *good*. But this does imply that just holding cash is not a true store of value in the long run.

          This too is a good thing: because cash is capital and it represents the potential to employ more people and put them to work. I think our society functions better if we keep our capital efficiently deployed in good businesses – not locked up in idle “stores of value”.

  • Derek May 1, 2021, 2:47 pm

    “We learn from history that we do not learn from history.” – Georg Hegel

  • thedude123 June 9, 2021, 1:17 pm

    I’m sure I’m going to seem like I’m just a different kind of evangelist here, but I keep an allocation of my portfolio into silver, (in addition to real estate, fixed income and ETF’s). It’s precious, and has 3000+ years as money, but it’s also productive. It has elemental qualities like being the most conductive and most reflective element, and it’s use is ubiquitous in electronics.

    If people really want to hedge against the dollars eventual collapse, or massive inflation, or other troubling scenarios, I’d say silver makes a better candidate than BTC. You can make the case that BTC should be $1M, but you can also make the argument that it should be zero. You can make the case that silver should be $100 or $500, but you can’t make a credible case that it should be zero.

  • Martize Smith June 29, 2021, 1:07 pm

    It’s interesting but the wealthiest people are not much I packed by bubbles or if they are they have a high level of intelligence and experience built up thought the years and decades to know how to accurately respond to bubbles if they have not already planned for it. Plus they profit from bubbles. People with a wealthy mindset can do the same. Think strategy and long term financial Independence and gaining assets.

  • Andrew November 3, 2021, 11:40 pm

    I would suggest you actually educate yourself on crypto before speaking about it. It’s like saying email is the internet and who would use that? It’s the same blind spot many had and you have with Bitcoin and crypto. Crypto and specifically Bitcoin isn’t just new money, it’s the internet of money. Programmable money. We can’t see all the implications this will have just like nobody could see Amazon 40 years ago.

    • Mr. Money Mustache November 4, 2021, 11:19 am

      Ahh, but I *did* learn about blockchain and cryptocurrency before speaking out (first in 2018).

      The thing is, the technology is novel and useful in places. Great – no objections, let’s put it to work!

      The part that is not useful, is gambling on future price increases of these chunks of data. To use your own analogy, this betting is like purchasing individual IP packets in 1999 and trading them back and forth for $60,000 each, because “IP Packets are the backbone of the Internet, which is going to be the fundamental building block of the world’s most valuable companies by 2021”

      Sure, you could counter-challenge me and say, “Yeah, but Bitcoin has a programmatically limited finite supply so that makes it valuable”

      But I’d say, “Yes, but as the pool of over 2000-and-growing listed cryptocurrencies proves, it is easy to create new (and BETTER) cryptocurrencies to meet the needs of future business.”

      There is nothing special about Bitcoin, other than the fervent religious behavior of its supporters. Which is a bad basis for an investment.

  • Passive Canuck March 30, 2022, 11:40 pm

    I know this is a bit of a dated article, but I’m very interested to know what your thoughts are regarding the crypto space now in 2022. Personally I’m not a big fan of purchasing/holding crypto directly, but I’ve come across some ETFs from Purpose Investments (Canadian/US listed versions) like ETHY and BTCY which write covered calls on crypto with leverage and generate monthly income for investors. Wondering what your thoughts are on these funds or similar ones, as I personally hold very very small amounts in my portfolio (in the 1-3% allocation range).


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