Lately, there have been several stories regarding the possibility that the U.S. economy is in a stock market bubble. It seems whenever there are extended time periods with high growth, the word bubble appears and investors start to become uneasy. So, what are bubbles and should we be concerned with them?
Stock Market Bubbles, Explained
In the strictest sense of the word, bubbles are speculative events that cause markets or products to be traded at a value that greatly exceeds the intrinsic value. Many academics spend their entire careers attempting to explain how and why they are formed and how to use past experiences to avoid them in the future.
In his book Famous First Bubbles: The Fundamentals of Early Manias, Peter Garber states “bubbles are a fuzzy word filled with import but lacking a solid operational definition…The definition of bubble most often used in economic research is that part of asset price movement that is unexplainable based on what we call fundamentals…”.
Read the full article on PBMares’ Wealth Management team’s website.