Stock Bubble Leads to A buying Opportunity

 Stock Bubble lead to crashes which lead to A buying Opportunity

How to Avoid a Stock Bubble

Updated May 2023

Riches come to those who seek them and not those who chase them. To those who pursue it, rags are the only reward.  Sol Palha

The average person, regardless of their education or lack off usually is on the receiving end of the stick when it comes to investing in the markets. The reason for this quandary is straightforward and predicated upon the fact that the average person’s decision-making process is driven by their emotional state. Successful investing and emotions do not go together; it’s an awful mix, and the outcome is always the same; stress and loss.

To win, you need to destroy this sequence. Emotions should have no place when it comes to investing in the markets.  Yes, it is impossible not to feel the emotion, but you can control the reaction. Instead of panicking and becoming one with the crowd, the strategy should be to break free from the crowd and take a position that is in opposition to that of the crowd.

Stock Bubble And Greed

We will illustrate the mass mindset by looking at a long-term chart of the NASDAQ.  Stock bubbles, like stock market crashes, come down to a perspective. One could view a bubble as a monumental opportunity in the works or a huge disaster. It comes down to when you opened your position and your ability to identify if that stock will turn around.   In general, if the stock is strong, a stock bubble will eventually lead to a buying opportunity.

The diagram below clearly and effectively illustrates the dilemma and uncertainty the average investor inflicts upon themselves. The solution is dangerously simple, but its simplicity makes it so hard for the crowd to implement.  One needs to throw one’s emotions out of the window when investing. Emotions should have no seat at the discussion table when it comes to buying or selling a stock.

Successful investing entails doing the opposite of what your useless emotions are so dramatically prompting you to do. There is simply no place for any extreme deviation from the norm when it comes to investing, and euphoria and panic are extreme deviations from the norm.  The same outlook applies to all the other major indices, such as the Dow, and SPX or major stocks such as GOOG, AAPL, WMT, etc.

Identify the emotion driving the markets & you can identify the trend

Mass Psychology & Stock market Losses

  1. This stock is going nowhere; it is hardly moving, and the fundamentals are weak. I need to find a high flyer that can move, not this laggard.
  2.  Pure luck. The fools who jumped in will regret it. This is a false breakout.  This stock is going to drop to new lows. I am not going to waste my hard-earned money on this junk.
  3. Holy smokes, the stock is still going up. Earnings are terrible, long-term fundamentals are not great, and the technical outlook is far from perfect.  I think I will pass, as I am sure it will crash and burn. I am sure it is the secret code word for knowing nothing. Moreover, it is impossible to use technical indicators effectively if you are looking through an emotional lens.
  4. Thank goodness I did not buy it; I knew it would crash. Instead of focusing on the fact that the stock is letting out some steam and building momentum for the next leg up, the mass mindset sees ’s only what it wants to see. Governed by useless emotions, it cannot recognise the opportunity, as it has an almost unstoppable affinity for embracing the opposite.  In this instance, the market did pull back, but a close examination reveals that the pullback is just the market letting out some well-deserved steam. The market puts in a higher low, which is a very bullish development.  The horde has an impeccable record of jumping into an investment when everyone is euphoric and out of them when blood flows through the streets.
  5. Wait a minute, what’s going on here? The market was supposed to crash. Maybe I made a mistake in not buying. Well, it’s not too late; the picture looks good, and analysts are upbeat about earnings, so I think it is still not too late to get in.  The masses need reassurance that all is well, but comforts come only towards the end of the game. Finally, this chap musters the courage to jump in.  Wow, it went up. Great; I’m making money.
  6. I was smart to wait until things improved before getting in; the markets will take off.  Let me call all my friends and tell them to jump in before it’s too late. When everyone is happy, it is usually time to hit the road.
  7. What is going on; why is the market dropping? It’s only a pullback; I will not fall for this game again (look at reason number 4). It’s time to average down and load up.
  8. There you go; I knew it was going to turn around. I should have put more into the market. Next time, I will load up as this is how to make money.  Now the secret desire to lose syndrome kicks in.  This guy is trapped in a euphoric mood and fails to recognise that the market did not trade to new highs. It put in a lower joy, which should have been construed as a warning signal.  As we stated before, the mass mindset only detects what it wants to spot. The only thing that matters for this guy is that he made some extra money.
  9. It’s going down again. Opportunity is knocking, and it’s time to load up. Earnings continue to improve; all the analysts on CNBC are bullish, and therefore, it must be a good opportunity to put even more money into the markets. It’s time to back the truck and load up.  I need to call everyone and tell them not to miss this opportunity.  When you are sure about something, sitting out and waiting is better. Overconfidence is a sure sign that you are missing something.
  10. The market is hit with bad news and pulls back very strongly.  Ah, this is just a temporary development.  The market will recoup and trend higher. I am going to buy more and average down. Gamblers always think of averaging down and hardly think of averaging upwards. Suddenly, this chap has become an expert on the timing of the markets. Blind faith is one of the main ingredients the masses seem to have an endless amount of. If you trade the markets on faith, only one thing is waiting for you at the end of the cycle; loss and despair.
  11. Now panic and dread start to set in.  He questions himself. Did I do the right thing by buying more? Perhaps, I should have sold when I was in the black and booked my small gains.  Maybe it is time to bail out and cut my losses. Things don’t look so good now. You know what; let me hold for a bit longer. Maybe something could suddenly change. The outlook has to change; things were great, and how could they change so suddenly?  The worst is over; it has to go up.
  12. Damn it, the market is dead. It’s time to get the hell out of the stock market. I should have never jumped; this is my last investment in the stock market. Ironically, right about this time is when the markets start to give hints that a bottom is not too far in the marking. This individual is bailing out when, in fact, he should be holding on. He is selling close to the bottom and allowing fear and anguish to direct his actions, just as he permitted joy to guide him into the markets.
  13. The market is going through a slow bottoming phase. Once this phase ends, a new uptrend will begin.  This guy bailed out very close to the bottom. At this point of the game, he should have considered holding onto the positions, as he had taken on an inordinate amount of pain, hoping for a recovery.  Instead, he opts for even more pain and suffering by selling very close to the bottom.

Never let your emotions do the talking 

Regarding the Markets, never let your emotions do the talking. If your emotions do the talking, then your money will start walking, and it will walk away from and towards someone else. Misery loves company, but stupidity demands it.”

Emotions are nothing but perceptions, and these perceptions are based on the data your senses detect. However, one must not forget that perceptions are based on what appears to be real to you. Therein lies the problem, what appears real to you might not be real and could be just your distorted view of reality. Hence, if the data is flawed, the perception will be flawed, and the outcome will be negative.  The only way to deliver your senses with clean data is to filter the emotional factor out of the equation.

 The key ingredient to success is to have control over your emotions.

Therefore, you should not fixate on trying to identify the exact top or bottom because the data needed to arrive that conclusion is faulty. Therefore, your projections will always be wrong.   The objective should be to separate delicate telltale signs that indicate when a market is topping or bottoming.

One way to determine this is to gauge the market’s fear level. If fear levels are in the stratosphere, then a bottom is usually close at hand. You can fine-tune this art by mastering a few technical analysis tools.  This will enable you to determine if the market is extremely oversold and if this coincides with a massive spike in fear, and then it’s almost a given that the markets will bottom shortly. If you look at any long-term chart, you will notice that every major correction or end of the world type event turned out to be a massive buying opportunity; hence, buy when the crowd panics and run when the crowd is celebrating.

Confusion is a word we have invented for an order which is not yet understood.
Henry Miller

Mass Psychology & sentiment analysis provides  insights into the stock bubble phenomenon

New Commentary Sept 2019

There is no change in volatility readings this week, but we see big changes in sentiment, and the anxiety index also confirms the move.

Now once again, you get to see in real-time that the best time to buy stocks is when the masses are panicking. It is in such moments that astute investors find real bargains. One needs to be patient with these opportunities and act when they present themselves. The last time this occurred was during the Oct 2018 to Jan 2019 period.  However, (as usual), most investors will panic and fee for the hills, when less than two weeks ago, they were begging for a chance to get into the very stocks they are now running from.

Nothing changes, and that is why the masses are destined to lose. The storyline is the same if you examine every single bubble in history. This is the most important lesson you need to grasp if you are a new subscriber. This is mass psychology in action; never follow the masses unless you are looking for a quick end

Random notes On stock Market Bubbles and Investing: May 2023

A solid grasp of technical analysis is critical as it empowers individuals to pinpoint market turning points and navigate the complexities of crowd behaviour, herd mentality, and the bandwagon effect.

These psychological phenomena can notably impact investment returns, often leading to unfavourable consequences. By incorporating the principles of Mass Psychology into your investment strategy and embracing a contrarian investing approach, you can mitigate the risks of blindly following the crowd.

These strategies will help you to avoid emotional biases that can cloud judgment and instead make informed decisions based on objective analysis.


This article published in March 2016 has undergone regular updates, most recently in May 2023. The updates keep the concise, impactful advice current and useful for optimizing marketing strategies.

Other related articles 

Mob Mentality: How to Overcome it and win the investment Game

Herd Mentality: Dangers of following the Crowd

Crowd Psychology  

A clear illustration of the mass mindset

Comic Strip Illustrating Mass Mindset

Lessons in Mass Psychology  

The stock bubble phenomenon