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Will It Be Different This Time? Part I: A Closer Look at Financial Bubbles

An inside look at past bubbles, why they develop, and how we as investors and advisors can stay out of harm’s way.


Since the beginning of time, the world and its citizens have experienced and witnessed the before, during, and after effects of extreme levels of optimism, euphoria, fear, and greed. In this series of articles, we explore the history of financial bubbles, why they happen, and most importantly, how you can avoid becoming the victim of their often devastating impact.


As advisors to a diverse group of clients over the past 30 years, we have seen how these bubbles impact the psyche of the common investor over time. There are always signs to indicate a shift in investment behavior, decision making, and rationale. In winter 2000, many conversations took place that clearly indicated a false sense of security, complacency, and elevated levels of greed. Clients who had been bond holders their entire lives were now prepared to invest everything in tech stocks. Everyone was suddenly an investment advisor who could easily beat the market returns. The NASDAQ ultimately lost about 85% of its value in a short period of time. Many investors were left in this wake of destruction and are still waiting for a “buy signal.” In fall 2007 as I sat in the chair to get a haircut, the stylist was sharing that she had just purchased her third home. Perhaps she was the best paid in her profession, but this was a bit unusual. She continued to share how little proof of income, assets, and other signs of financial stability were required to get approval for these very high debt-to-value loans. Shortly after this conversation, the 2008 financial crisis ensued and many were left with little to show for their real estate activities.




Oppenheimer & Co. Inc. does not provide legal or tax advice, but will work with your other advisors to assure your needs are addressed. The opinions of the author expressed herein are subject to change without notice and do not necessarily reflect those of the Firm. Additional information is available upon request. Investors should review potential investments with their financial advisor for the appropriateness of that investment with their investment objectives, risk tolerances and financial circumstances.

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