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NOTEBOOK: The next bubble? We’re blind


I asked a bubble related question to the panel at the CFA Society Iowa dinner, which was moderated by Jim McCaughan, CEO of Principal Global Investors.

After much of the night had been spent talking about past bubbles in the markets, I asked: “What factors lead to our inability to see a bubble as it forms?” The question is rooted in my frustration and perception that each time there has been a collapse of some sort, the attitude is “never again,” but that the same problem ultimately crops up in a new sector.

Jeffrey Rosenberg, chief investment strategist for BlackRock, the world’s largest investor at $3.5 trillion, answered my question. Bubbles are generally the result of a belief system that everyone agrees upon, actually being wrong, he said. Ie: Home prices will always go up.

The challenge then becomes to question the belief systems of our situation today, and ask, how can they be wrong? Easier done in hindsight of course. So the next bubble? Well, as Rosenberg said, we’re blind to the obvious and blind to what we are blind to. Not exactly comforting, but it made me wonder what absolute truths and rules I should be questioning.

And as one of the other panelists suggested, one way to do that? Be wary of crowds.



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