“A pin lies in wait for every bubble, and when the two eventually meet, a new wave of investors learn some very old lessons.”
A speculative frenzy occurs when the general public goes wild for stocks. People see them running up in price and want to jump on and make some easy money. It happens big-time about once every thirty years, usually with the advent of new technology. In the last hundred years it happened with radio, airplanes, autos, computers, biotech, and the Internet. Stock prices reflect the passion in the casino as opposed to the underlying values of the companies. Warren has missed every speculative bull market since he began investing. For him, the prices that were being paid were for future earnings that might never appear, and, in most cases, did not appear. When earnings failed to appear, the hope that was holding up stock prices vanished, gravity took over, and prices fell earthward—often with stunning velocity.