What is the theory of bubbles?

When using on finance and investment strategy, bubble theory is related to the performance of security prices. The concept of bubble theory basically states that the price of security of the security or securities group passes through the phase in which the price per unit will be quickly and high above the value that is marked with previous performance and current market conditions. After this rapid rise in the price, the securities reach the point where this bubble bursts, and the price of security goes to the period of quick descent.

There are investors who take this idea of ​​bubble theory very seriously. For this purpose, some investors will do in terms of finding shares that are considered to be a certain indication of the development of the rapid price rise in the near future. When the investor finds the shares he feels about, he will soon appear according to the model of the bubble theory, the investor buys as many shares as possible. At this point, the emphasis is on monitoring the output of the security price and then finding the right time to sell shares. The intention is to sell pricesNot papers just before the price level and begins to fall.

Other investors tend to think that the theory of bubbles is more pious thinking than a strategy that can be demonstrated by logical approach to evaluation and exploring the performance of shares and the general conditions of the current market. In general, it is easy to point out specific incidents, when it is said that it is about to explode into a period of rapid growth, only to work in a much less spectacular way. At the same time, supporters of the theory of bubbles also point to opportunities to identify a rapid increase and decline in stock price and actually went through.

In general, investors tend to approach the bubbles of bubbles with a certain degree of skepticism, at least until there is an incident, when the theory seems to be true. Most investors, howeverin the market.