How to avoid being ruined by market bubbles

It’s not always easy to spot bubbles. And even if you do spot them, they can be hard to resist. Here, John Stepek explains how to overcome your natural biases and avoid buying overpriced investments.

There's a great story told by US fund manager Jeremy Grantham, which sums up almost everything that's wrong with fund management. Grantham was always sceptical about the technology bubble. He shunned the sector during the mega-boom years of 1998 and 1999. As a result, his funds underperformed, and his company lost a lot of business. About 40% of his clients left and took their money elsewhere.

But he wasn't the only dotcom sceptic. Indeed, at the height of the boom he asked roughly 1,100 "full-time equity professionals" if they thought that a major bear market (where stocks fall heavily) lay ahead. Incredibly, more than 99% of them agreed. This was "even as their spokespeople, with a handful of honourable exceptions, reassured clients that there was no need to worry".

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.