All too often, people will invest in the "next big thing," hoping to make out like a bandit. The trouble is, by the time a potentially rapid-growth investment is known, it's already priced into shares. More people moving into a small part of the market only sends prices far higher than the fundamentals will justify.
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 | | When to Buy After an Epic Collapse |  | All too often, people will invest in the "next big thing," hoping to make out like a bandit.
The trouble is, by the time a potentially rapid-growth investment is known, it's already priced into shares. More people moving into a small part of the market only sends prices far higher than the fundamentals will justify.
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That's how you get bubbles. It doesn't matter if it's in tech stocks, real estate, or cryptocurrencies. Avoiding assets making these big moves upwards may mean missing out in the short-term, but it also means avoiding big losses in the long-term.
But after that bubble has burst is a different story. Buying tech stocks that survived in the early 2000's, or buying housing for a song in 2010, or even cryptocurrencies earlier in the year offered investors some great opportunities.
For most asset classes that had a bubble move up, it's possible to buy something for 70, 80, or even 90 percent off its peak price. If it's an asset class likely to survive, most of the pricing risk is gone, precisely because nobody wants to buy it at that time.
While each situation is slightly different, there's usually a period where an asset class stops falling. It then tends to linger around that low price range for a while before moving higher.
Once something does start moving higher, it won't be with the same vigor as before. But that's okay, because it tends to do so at a healthier pace.
One area that's making this post-bubble move right now is in the cannabis sector. The so-called "pot" stocks had a big move up last year on various states legalizing recreational and medicinal marijuana use. Then, they dropped big, as legalizing these products quickly led to oversupply. The market isn't quite fully recovered yet, but it looks like the next best place for a post-bubble bounce… if you know where to look.
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