The Psychology of Money
You And Me
One reason for market bubbles: “Investors often innocently takecues from other investors who are playing a different game than they are.”
Short term momentum attracts investors with short time horizons. “Bubbles aren’t so much about valuations rising. That’s just a symptom of something else: time horizons shrinking as more short-term traders enter the playing field.” But note that the short-term investors will only stick around so long as the momentum continues, but that this momentum is transient.
“Bubbles do their damage when long-term investors playing one game start taking their cues from those short-term traders playing another.”
“It’s hard to grasp that other investors have different goals than we do, because an anchor of psychology is not realizing that rational people can see the world through a different lens than your own.”