How Warren Buffett Thinks Financial Bubbles Grow To Massive Sizes | Exploring Markets

How Warren Buffett Thinks Financial Bubbles Grow To Massive Sizes

During the Great Financial Crisis of 2008 and 2009, Warren Buffett sat down with the United States of America Financial Crisis Inquiry Commission. The entire document is here. But one section stands out and that's his views on financial bubbles and how they really get going. He's not sure how they start, but's aware of how they pick up steam and become euphoric.

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"I read that the tulip bulb was in 1610 or 1620, but tulips had been around before, and they always looked beautiful and people wanted them on their tables and all that. For some reason, it gets to a critical mass, a critical point is that where the price action alone starts dominating people’s minds. And when your neighbor has made a lot of money by buying Internet stocks; and your wife says that, “You’re smarter than he is and he’s richer than you are, so why aren’t you doing it?” When that gets to a point –- when day trading gets going, all that sort of thing, it’s very hard to point to what does it."