How do you tell if an investment is a bubble?
Most of your neighbors and friends know about it and have some skin in that investment (think housing in 2006).
It's been all over main stream media (think CNBC, CNN, Fox News) in the recent past showing people are super excited about it. There might even be nationwide seminars teaching people getting into it.
Ordinary people are overextending themselves to get into the investment using borrowing, excessive leverage because they are afraid of missing out (FOMO for those of your who knows).
The price of the investment gradually gets very unaffordable for the average joes.
The valuation of the investment is mostly based on assumption of growth and very little on the current intrinsic value (i.e. value is very sensitive to growth rate assumption)
There are very little marginal buyers left in the market which only means one thing.. the risk is to the downside because when it comes the time to sell there will be no shortage of sellers to push the price down and cause panic.
Next time when you are trying to figure out if something is in bubblicious territory, consider the above your checklist.
Wish everyone happiness and prosperity.
