What is a Bubble?

In Short

A bubble is when the price of an asset rises far above any measure of its intrinsic value. People think prices will go up forever and buy (paying any price) because they think it will be able to sell it for an even higher price later.


Over the years there have been many bubbles. In recent history we have the housing bubble and the .com bubble. In both cases the prices seemed to be able to go up forever until they came to a sudden and dramatic end.

Tulip Mania

In the Netherlands in 1593, Tulip Bulbs were seen as a status symbol. A few decades later the price had exploded to absurd levels. In 1637 a single bulb sold for more than 10 times the annual salary of a skilled craftsman. According to journalist Charles Mackay a single Semper Augustus bulb could buy 10 acres of land. People sold everything they had in order to buy more tulip bulbs. Many bought in accordance to greater fool theory (people buy something worthless because they think they can sell it later for a higher price to a bigger fool). When the bubble popped (and they always eventually pop) it popped suddenly and violently. It damaged the Dutch economy for many years to come.

Bubbles are Fragile

Bubbles are fueled entirely by speculation and thus are extremely fragile and unstable. Anything that dampens enthusiasm (even by a tiny bit) can end up violently collapsing the bubble. Bubbles always collapse violently.


I realize it’s very tempting to buy into a speculative bubble. The prices keep going up, people around you are getting rich, and you see an easy way to get a lot of money. The problem is that no one can know with any certainty when that bubble will end. You may make a lot of money but far more likely you will end up poor and holding a bunch of worthless product.

Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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