What the wise do at the beginning, fools do in the end, according to Warren Buffet. Who are the fools, Mr. Buffet is referring to?

In an article by George Athanassakos a Professor of finance and Chair of the Ben Graham in Value Investing at the Ivey Business School at the University of Western Ontario, the fools are retail investors.

In a research paper by Harvard University and Shanghai Stock Exchange, the panic on the Shanghai market in 2015 was examined. The number of retail investors buying shares at the peak was 7,100% larger than prebubble period.

Charles Kindleberger, researched bubbles and published articles, a typical bubble starts with good fundamentals. But prices start trading on speculation, which fuels media reports which means more people enter the market for fear of missing out. Eventually prices fall from panic selling. Some paid more than others and will takes years before markets ever recover.

The reason why there are bubbles is there is follow the leader process as households see that others are profiting for speculative purchases. There is nothing as disturbing to one’s well-being and judgement as to see a friend get rich.

According to the Harvard and Shanghai researchers, retail investors accounted for 78% of the volatility of stock returns. In the expansion phase, new retail traders accounted for 43% of the volatility of stock returns.

The large tech companies have risen in prices, is there a bubble or a change in society?

Linking to dividend paying stocks, the bubbles come up with a get rich quick message, if you wish to avoid the bubbles, try staying with profitable stocks which pay a dividend. There is a reason why you rationalize the trading multiples, and the dividend ensures as the price goes up and down, you receive monetary feedback. Bubbles will come and go, just remember most stocks on the exchange are not profitable, stay with the ones that are. If you happen to own stocks in a bubble, remember taking profits is good and reinvest in profitable stocks.

There are more questions than answers, till the next time – to raising questions.