401ks

Chocolate-Covered Hand Grenades

What is something worth? It’s worth as much as another man or woman is willing to pay for it. When I talk about investing in “chocolate covered hand grenades,” I’m not literally talking about hand grenades or chocolates. I’m describing what happens when people invest in bubbles.

Bubbles in the market are created by supply and demand. As the demand increases and the supply decreases, the cost rises. This is the bubble growing. But, when the demand disappears the bubble bursts and the cost drops suddenly. More than likely, it plummets.

Why, when a burst is coming, do people keep investing? Chocolate covered hand grenades! The idea, the story, the craze behind the bubble growing is so enticing people keep buying. This craze, which drives the cost up, is not based on facts and figures. It’s based on stories – on the emotional whim of the buyer. So, when the craze disappears, so does the value.

 

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