Bubble Burst: Lessons for Investors - The Crisis That Crashed Your Portfolio

Understand “Bubble Crisis” Before Your Portfolio Disappears

Many investors who have experienced a bubble crisis are often shocked because they see their investment values soaring dramatically and then being wiped out as if a balloon burst. This actually happens. In each decade of the financial markets, there are at least one or two times when investors witness a “bubble burst,” a cycle where asset prices surge beyond their true value and then sharply decline.

Why Do Prices Surge Beyond Reality? The Role of Speculation and FOMO Psychology

Bubble burst occurs from a simple yet brutal phenomenon: asset prices—whether land, company stocks, or even digital coins—exceed their intrinsic value. Then, the market system responds with “problem invited” as follows:

Step 1: Opportunity Appears - Something new enters the market, such as technology, abnormally low interest rates, or an industry sector never seen before.

Step 2: All Money Flows In - When investors see high returns, they rush in, and prices start climbing.

Step 3: Obsession - People begin to believe prices will keep rising forever. Seeing neighbors making huge profits, the fear of missing out “FOMO” drives even those who don’t understand the asset to rush in.

Step 4: Warning Signs - Whenever seasoned investors or observant individuals realize prices are overvalued, they start selling. Small signals of caution appear.

Step 5: Panic - When the majority understand the bubble is bursting, everyone throws their assets away, selling out, and prices plummet rapidly.

Bubble History: Why “Bubble Crisis” Content Matters if You Don’t Learn

Case Study 1: 2008 US Housing Crisis

Between 2000-2007, abnormally low interest rates led many to borrow money to buy homes, even if they couldn’t really afford it. Financial institutions kept issuing loans repeatedly. The “opportunity to make money” was huge. Housing prices soared. Investors bought for speculation, not for residence.

By around 2007, many homes became unsellable. Homeowners carried “bad debt of $1.5 trillion.” A global financial crisis ensued. Banks collapsed, and there was a major “bailout.”

Case Study 2: Thailand’s Tom Yum Goong Crisis, 1997

At that time, interest rates were very high. The real estate market was booming. Foreign capital flooded in. Investors hoped for “quick profits.” Land prices skyrocketed.

Until July 2, 1997, when the Thai baht was devalued. The currency was pegged, and large homes collapsed in value because most loans were in foreign currencies. Debt soared, portfolios collapsed, and the entire real estate market across the country stagnated.

Types of Bubbles: Where Can They Occur?

Bubbles are not limited to land; they can be seen anywhere assets are traded:

Stock Market Bubbles - Good companies with low income see their stock prices surge because neighbors buy, not because of actual earnings, until prices fall hundreds of percent.

Commodity Bubbles - Gold, oil, metals rise due to speculation, not genuine demand. Prices can crash suddenly.

Digital Coin Bubbles - Bitcoin and other coins rise because of “FOMO.” When everyone claims “guaranteed returns,” prices explode and then collapse.

Credit Bubbles - When lending increases obsessively, loans fail, and borrowers cannot repay.

Warning Signs: Is the Bubble Growing?

If you see these signs, prepare yourself:

• Asset prices suddenly drop “like a heart attack,” without “fundamental reasons” for the rise.
• General investors start to get anxious about profits, even if they don’t understand what they bought.
• Phrases like “once in a lifetime,” “must buy now,” “guaranteed returns” are used.
• Old, careless investors begin to warn, but no one listens.
• Trading volume spikes even when prices stay flat.

How to Protect Yourself: Don’t Become a Victim

Review your purpose before buying - Ask yourself: Are you investing because you understand, or just afraid of missing out? If the latter, step back.

Diversify risk - Don’t put all your money into one asset class. Spread across multiple assets so that if “this one bursts,” “that one is still ongoing.”

Avoid pure speculation assets - If an asset has no “solid intrinsic value,” only “price,” it’s very risky.

Invest gradually - Instead of putting a large sum in at once, break it into smaller parts and invest steadily. This reduces the chance of buying at the peak.

Keep cash - Having “liquidity” gives you “power of choice.” When the bubble bursts, you can buy “at real lows.”

Study the context - Follow information, read reports. You don’t need to be an economist, but aim to be “not stupid” when making decisions.

Conclusion: Bubbles Will Come Back

Bubble crises are not something that disappear. They are part of the financial markets. Throughout history, whenever prices surge beyond reality, there’s always a downturn.

Knowledge doesn’t always make you invest calmly, but it helps you “not go crazy.” It enables you to “sell at the right time” instead of being driven by fear to “sell when scared.”

Stay calm, remain flexible, and stay alert. Bubbles may burst, but your portfolio doesn’t have to.