This Time It's Different
Notes on Irrational Exuberance and the recurring patterns of market bubbles — why investors keep making the same mistakes across centuries.
The pattern that repeats
Reading books on the Great Depression, the 1960s stockmarket boom, the 1980s boom, the internet boom and the GFC reveals a striking pattern. The activities which went on at the time seem reminiscent of what we see today. Some are more representative of a less developed stockmarket, but the behaviours are remarkably consistent.
In bubble times, there seems to be a tendency for complacency, as an aspect of social psychology. Even if people haven’t individually concluded that investor confidence is at the all-time US stock market peak, there is a negative correlation between bond yields and the P/E ratio. Because of the relatively low level of bond yields, there is strong evidence of a strong relationship between bond yields and stock valuations that has persisted over time.
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