Unit 2 · Level 4 · Market history
This time is different
Sir John Templeton called 'this time it's different' the four most expensive words in investing. Dutch tulips in 1637, British railways in the 1840s, internet stocks in 1999, crypto in 2021: each bubble had a genuinely new technology or story, and each ended the same way. Bubbles don't repeat exactly; they rhyme: new era, old maths.
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What you get asked
Assemble the anatomy of a bubble, from birth to burst
Railways, radio, internet, crypto: the costume changes, the play doesn't. Step three is the tell: when valuation itself is dismissed as outdated.
The cruel part of 1999: the internet really DID change the world. So what went wrong for investors?
A true story can still be a terrible price. The Nasdaq fell ~78%; even Amazon dropped over 90% on the way to vindication, and most dot-coms simply died.
Templeton's warning, the four most expensive words in investing: 'this time it's ___ '.
The words aren't always wrong; sometimes things ARE different. They're expensive because they're used to justify any price at all.
During a mania, which question best protects you?
Separate the story from the price. Bubbles are rarely lies about the technology, just exaggerations about what it's worth today.
Your index fund will contain every future bubble as it inflates. Is that a problem?
The index held dot-coms in 1999 and still delivered over the decades, because it also held everything else and never panicked. Diversification is bubble insurance, not bubble immunity. 🐜
The rest of this unit
A century of crashes, recoveries and expensive lessons. Read before repeating.