A note from Daniel

As with anything, the price of an asset, such as a stock, is set by supply and demand. The more people expect to be able to profit by speculating in the asset, the higher the demand, and the more the price rises. However, sustained price increases are not what makes a bubble. To be a bubble, it needs to eventually pop. Once people stop expecting further price increases—which tends to mean they expect the price to drop, not just stay the same —they rush to sell, to avoid losing money. Supply suddenly soars, demand vanishes, and prices plummet, causing even more investors to flee.

Daniel The Great Mental Models, Volume 4, page 189 · December 31, 2024 Save to shelf
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