Practical analysis for investment professionals
10 February 2014

Top Anecdotal Signs of a Market Bubble

For more on market bubbles, don’t miss Bursting the Bubble: Rationality in a Seemingly Irrational World by David DeRosa from the CFA Institute Research Foundation.

At the risk of further inflating the bubble in discussion about whether or not global equity markets are in a bubble, I think it is worth discussing the topic from a qualitative point of view. Most of the talk of bubbles is data-driven analysis focusing on things like multiples, profit margins, revenue growth, historic equity market tops, equity risk premiums, and so forth.

But having worked as a professional money manager through two market bubbles — dot-com and real estate — I can attest that qualitative signs are often more persuasive than the quantitative signs. Over the years I have identified anecdotal signs of financial excess, and I couple these signs with hard data, such as comparing current valuation levels relative to historical data, to determine if financial markets are in a bubble.

Here then, are my top anecdotal signs of a market bubble:

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  • Covenant creep – Here the terms for new financial securities are especially bad for buyers. In the bond market, this may mean significantly lower coupons; massively reduced call protection; no to low call premiums; an increase in the number of embedded derivatives designed to appeal to a “hot” market; and so forth. In the equity market, this can mean the issuance of shares with no to limited voting rights; a further alteration in your ability to elect board members; and so forth.
  • New issue time to market massively reduced – Similar to covenant creep, above, is the reduction in the amount of time a buyer has to consider a prospective new issue, debt, or equity. At one point in the dot-com era, new billion dollar issues were being announced just shortly before the close of the financial markets and yet being priced several hours later. Clearly this is not enough time to do your proper due diligence in researching a security to fulfill your fiduciary duty.
  • Stock splits actually lead to a “pop” in share price – Say you and three of your pals order a 45 centimeter pizza at a restaurant for €20. Further, you ask your waiter to please ensure that the pizza is sliced into 8 slices so each of you may have two slices of pizza. All of a sudden the waiter comes back and says, “We have a special offer on your 45 centimeter pizza: we can slice it into 16 slices, and then each of you can have four slices each. But it’s going to cost you an additional €5.” If you were a true financial pro you would likely retort, “But it’s still the same 45 centimeter piece of pizza, just sliced more.” Welcome to the world of the stock split, the most enervating of all market stupidness, in which simply slicing the same corporate pizza more ways results in a bump in stock price. If the market actually falls for this legerdemain and bumps the share price of a company up after a stock split announcement, then you are likely in a bubble.

  • Art sales are front page news – Only in a bubble do the latest results of an art auction at a big house, such as Sotheby’s or Christie’s, make front page news. After all, only in a market bubble are people making such crazy money so that it becomes disposable enough to spend a fortune on a speculative asset.
  • Trust us, because you’re an idiot – Market bubbles are often confusing because, on one hand, those who know their market history can see in the hard data that valuations are insane, yet on the other hand, no one seems to care. In the midst of this tug-of-war of opinion will be those who talk of your inability to recognize the unique moment of history that you are currently so privileged to experience firsthand. Or these same folks will talk of new magical paradigms that are being hatched without full acceptance by the old-timers. In other words, “trust us, because you’re an idiot” rules the day. If you feel dumb, despite your accumulated wisdom, you are likely in a bubble.
  • Hubris rising – If you look at the front page of a financial industry news source and there are stories about which bespoke tailor is the most prestigious currently, or which cities are best to refuel a private plane, or why the Four Seasons in Turks and Caicos should get a new origami towel folder, you are likely in the middle of a bubble.
  • Loads of new jargon – Bubbles are always accompanied by loads of new jargon usually to describe new phenomenon unique to the bubble, such as: “price-to-eyeballs,” “mortgage backed security,” or “swaption.” While you may be familiar with these terms now, there was a time when these terms led to immediate head scratching. If you find yourself with your years of financial industry experience wondering, “What is that?” then you are likely in the midst of a bubble.
  • Relatives ask you crazy investment questions – When Uncle Joe asks you about whether or not swaptions are good for his retirement account, or your mom wants to know which online discount brokerage is kindest to options traders, then you are most certainly in a bubble.

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  • Everyone is an investment expert – This is, of course, the classic anecdotal bubble sign and is also a close corollary to your relatives asking crazy questions. It typically takes the form of your taxi driver or hairdresser offering you unsolicited investment advice. Another, more insidious form is when folks who probably don’t know about investing tell you their opinion about the current head of your nation’s central bank. Bubble? No doubt.
  • Investment news leads the regular news cast – If you go to your favorite website or turn to your favorite television channel and the lead news story is consistently about new highs in financial markets, or about new companies going public then you are likely in the midst of a market bubble.
  • Sales jobs are all you hear about – In the midst of the dot-com bubble many people left behind established careers to study to be stock brokers. Meanwhile, in the middle of the real estate bubble, many people also abandoned loyal companies to become realtors. If the hottest career is in selling assets, then there is a good chance that you are in a bubble.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo credit: ©Getty Images / Robert Obrzud / EyeEm

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: [email protected]

64 thoughts on “Top Anecdotal Signs of a Market Bubble”

  1. Laurence Brody says:


  2. Hi Laurence,

    I am very pleased to hear that you enjoyed the piece. If you think of some of the direct ties to behavioral finance please feel free to share them with the wider audience.

    With smiles,


    1. Hanson says:

      Thanking you for sharing this article.

      1. Hello Hanson,

        You are most welcome. If you found this useful, you might also take a deeper dive on our The Enterprising Investor site for additional content : ) [shameless plug].

        With smiles,


  3. Huy Tran says:

    “…qualitative signs are often more persuasive than the quantitative signs”

    I do agree. The bubble is nowhere but just in our daily life, its signs are just around us. Numbers, data, statistics… seem to be convinced but actually they just make us more confused. Nice article !

    1. Hello Huy Tran,

      Thank you for your compliment of the piece and thank you for adding in your own sense of when market bubbles are present.

      With smiles,


  4. I really liked this article. Provides a lot of insights and also has a touch of humor. E.g ‘Trust us because you are an idiot’.
    I agree completely that qualitative signs tend to be more convincing than quantitative signs:
    all the mind-boggling numbers and confusing charts, often coupled with the ‘loads of new Jargon’ you were talking about sometimes fail to paint the full picture

    1. Hi Lennox,

      Thank you for sharing your thoughts on bubbles, I am certain that it is helpful to readers to know others find quantitative data unconvincing, and jargon confusing!

      With smiles,


  5. Jeff says:

    “Everyone is an investment expert – This is, of course, the classic anecdotal bubble sign and is also a close corollary to your relatives asking crazy questions.”

    *Cough* Bitcoin *Cough*

    1. Hi Jeff,

      Like you offering up the Bitcoin example as a market that may be in bubble territory. (see response immediately below)



  6. BV says:

    So, are we now in a bubble, in your opinion?

  7. Hello BV,

    With the expressed caveat that this is my opinion and not the opinion of CFA Institute…

    I think we are right at the precipice of bubbles in many markets. For example, US stock market, US bond market, US high yield market, German real estate, Chinese real estate. I think that many of the anecdotal signs I named above are clearly happening. However, what is missing is the general intuitive sense of “devil-may-care” euphoria that I have experienced in the two bubbles of my investment career.

    Bitcoin is an example of a market where there is that kind of euphoria. Most recently we also saw it in the gold market and Apple stock, too. In the precipice markets I just don’t get that “pied piper” sense where people have become brainless and cult-like and will march right off of a cliff because they are so mesmerized. Put another way, there are enough people questioning the valuation levels, and enough people (especially the general public) not participating in the financial markets that it is hard for me to say screamingly: yes, we are in a bubble!

    For what it’s worth, in both the and real estate bubbles I was screaming bubble about 18-36 months prior to the POP! The portfolio I co-managed was 25-35% cash in both instances. If I were managing money now I would be about 10-15% in cash.

    While I am on the subject, identifying a bubble is easy when compared with predicting when the danged thing is going to POP!

    Let’s be careful out there!


    1. max1987 says:

      And even then it may simply deflate for years without popping

  8. Suday says:

    Each point is worth a praise…..excellent piece of Analysis and Insight offered. Thank you for sharing.

    1. Hi Suday!

      Thank you for taking the time to let me know that you enjoyed the piece so thoroughly. You are welcome!

      With smiles,


  9. Adrian Bank says:

    With the possible exception of covenant creep in the junk bond market, none of these things are happening. Nobody thinks we are in any kind of “new era” except perhaps permanent malaise. There is no euphoria. The reaction to recent stock market increases is more surprise and disbelief rather than euphoria or hubris. Ex the cash, Apple is at an extraordinarily low valuation on current cash flow. A valuation much more like 1982 not 1999. The proverbial taxi driver is not talking stocks. He is talking about Facebook and Apple but more the products not the stocks. And he’s talking about these things for a good reason. There is a genuine communications revolution going on with huge consequences and it’s very exciting but with a few exceptions, it’s not really driving stock prices. I’m a bear but this in no bubble.

    1. Hello Adrian,

      Thank you for including your assessment of the current environment. I am certain that your comments are valuable to readers of this piece.

      With smiles,


  10. Sheila says:

    Excellent piece!
    So funny that you mentioned the art market…always been a “tell” in my humble opinion…
    Not to say we can’t go higher…feels like we need that last exuberant “push” to inflict further pain…but the signs are there that bear watching…

    1. Hello Sheila,

      Love the cat image. Thank you for weighing in about the art market…that is my favorite sign of a possible market bubble. Not sure if you read through the preceding comments, but I said something to the effect of what you have communicated about the missing “last exuberant ‘push’.”

      Best wishes!


  11. During the dot-com bubble, I’d be at the playground with my toddler and the other moms would be discussing day trading. That confirmed the bubble for me! Not seeing euphoria anywhere these days – in my midwestern suburb people are worried.

    1. Hello outsiderchronicles!

      Hah! I love that story. Thank you for sharing your insight. I also agree that the general public are worried and certainly not experiencing a gold rush euphoria (see my above comment).

      With smiles,


  12. Hi Jason,

    I write a lot about this topic. Here’s a sample:

    Keep up the good work.


  13. Thanks David for including a link to your work.

    Best wishes for success!

  14. ors says:

    Very interesting points…. Applicable in all markets of the world….. But being able to spot the bubble is just half the story….

    You should also write a piece on when to identify the bottom.

    1. Hello ors,

      Thank you for weighing in on the article…I tried to write it so that it was applicable around the world and in various markets (e.g. equities, real estate, fixed income, etc.). So I’m thrilled that you picked up on the broad applicability – yea!

      As for a piece about how to identify the bottom. I am not brave enough to venture such a piece as there is, to my knowledge, no such Holy Grail of market wisdom. Among the problems with such an endeavor are:

      * Market participants have free will and they are free to change their mind at any time. This destroys the predictions made by any deterministic model, system, or theory. People do not behave in the ordered way that atoms do.

      * Each market participant has a different time horizon in mind when they buy or sell. This clash of time horizons nets out each day in the level of financial markets. However, when you say “call the bottom” there is an implicit time horizon assumption in that question. Do you mean “all time” as in the preceding 200 years? The previous 2 minutes? Going forward forever more? You tell me the time horizon first and then we can hold that variable fixed and apply a model. Oh, but then we run into the free will problem above.

      If you ever encounter such a delight as the market bottom caller that makes better than 50:50 predictions please promise you will come back here and share your finding with everyone!

      With smiles,


  15. rleewilson21 says:

    Hi Jason, great article and thank you for sharing! What I’m curious about, considering your respect for qualitative indicators, is do you have a favorite technical or quantitative indicator you prefer to observe? Much of the technical analysis I see is confusing or seemingly arbitrary but then again I’m not well-versed in the topic.

    Regards, Rob

    1. Hi Rob,

      Nice to hear from you; I’m thrilled that you like the piece. You know me too well, yes, I love qualitative indicators, especially when coupled with quantitative indicators. The two forces combined usually result in conviction : ) So you ask a good question: do you have a favorite technical or quantitative indicator you prefer?

      I do! I look at a very simple version of the equity risk premium and compare it to market history. My version of the equity risk premium is to take the inverse of Shiller’s modified P/E (you can find a time series of it on the web) and then subtract the 10 year US Treasury yield. The inverse of the Shiller modified P/E is essentially the earnings yield, or a form of expected total return on equities.

      When I last looked at this number (in November) the sole reason that equities looked reasonably priced was because of the continually low level of interest rates.

      Other similar figures could be calculated in other markets, by the way. You simply take the expected return of the asset (e.g. real estate would be the inverse of the cap rate) and subtract the lowest risk available expected rate of return (see my piece on Enterprising Investor about the “risk free” rate).

      I also look at the difference between the growth rate in revenues for the S&P 500 relative to the growth rate in earnings for the S&P 500. Ideally you see accelerating revenue growth (i.e. positive second derivative). Right now that is not the case for the SP 500. Instead you see slowing revenue growth.

      Hope that helps!


  16. Rajeev Thakur says:

    Excellent article about buble. People should learn this and be careful and invest when bubble bursts and bottomd out.

    1. Hello Rajeev!

      Thank you for sharing your views! I agree with you that people should internalize some of these anecdotal signs, as well as discover some of their own favorite signs. I think it would benefit investors and financial markets tremendously.

      With smiles!


  17. Michael L. de los Reyes, CFA says:


    Really good stuff – this could only come from a true market veteran!

    In all my years in the markets, the best guys were the ones who thought like this – it’s this sort of “developed-over-time-common sense” that is so lacking among “professionals”.

    That said, given your warning signals, it doesn’t seem as if we’re in a bubble just yet but man, the moment CNBC starts making waves, I’m out!

    1. Hello Michael,

      Thank you for your comments, and thank you for adding the CNBC sign, as well. I agree that we are not in a bubble in US equities. I note with interest that Bloomberg (online) this morning has a story about a $100,000 suit. This is fairly similar to my point above about art work making headlines + hubris. Yikes!

      With smiles!


  18. Great read. Is it okay to republish this acknowledging the original source in my blog? I run a blog to promote finance and the CFA charter in Bangladesh.

    1. Hello Asif,

      Thank you for your interest in the content I created, I am pleased that you enjoyed the piece. The decision for honoring your request is up to our editor. He asks you publish the first few paragraphs
      with a link to The Enterprising Investor.

      With smiles,


  19. Thanos Pasias says:

    Great piece, it goes straight into my lengthy list of bubble signs! One could add a few more but not many that are descernible without doing some research. This list is representative of the financial climate at times as those described. I could dare to add a rising inflation to them (due to household lending and ballooned wages).

    1. Hello Thanos,

      Thank you for the praise. Feel free to add additional signs if you feel like it – perhaps it will save a reader the heartache associated with a in a bubble.

      With smiles,


  20. Adam Waszkowski says:

    I really enjoyed the article. In response to your and another responder’s idea that its not euphoric enough, I would discount that specific aspect today. Considering the two bubbles are in people’s memory, I dont think the public completely trusts the market today, but feels compelled to participate (to a limited extent due to the memory). A close corollary might be the concept that ‘there is no other alternative’, so ‘trust us b/c youre an idiot’.

    1. Hi Adam,

      Thanks for reaching out and communicating your enthusiasm for the piece, and for sharing your views of the situation.

      Let’s be careful out there!


  21. Gene says:

    One of my favorite anecdotes on this subject was from the housing bubble, but could be applied to other assets. The notion was that in most times, people had to figure out whether or not they could afford a house, or particularly a second vacation or rental house. Around 2006, it became clear to many people that they couldn’t afford NOT to own more than one house since there was so much free money available for the taking. If a nations sentiment is one of horror at the prospect of NOT having enough risk on, things are probably getting dicey.

    1. Hello Gene,

      A great point and a good addition to the list. Well said, and well done!



  22. Sajeev says:

    Nice piece Jason… For me as a trader and investor with close to a decade’s experience, my perception of risk is a red flag of whether it is bubble territory or not… If after buying a stock my greatest fear is not how much I could lose if I am wrong but if my friend who dabbles occasionally will make more money in the following weeks on his stocks then I know the end is near and I better start closing out my weakest positions…

    1. Hello Sajeev,

      Thank you for the feedback and for the anecdote. I am certain that, as a trader, you cannot wait until the data is in; else your competition all are acting on the same information.

      With smiles!


  23. Omar Faruk says:

    Useful, How to find the phases of bubble’s? For example; at internal market, market bounce for 30%, then how do you say it’s a part of bubble? TIA

    1. Hello Omar,

      Thank you for taking the time to provide feedback. It sounds as if you are wanting more information on the path (chart?) of a typical bubble? If so, try plotting the daily closing prices of a stock index on a logarithmic scale. Then plot a regression line. Then look for any severe deviations from that line. If you know of some resources that discuss the ‘anatomy of a bubble’ please feel free to share them with the audience.

      Yours, in service,


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  25. Jimmy says:

    Hi Jason,

    Isn’t the first one counterintuitive? I mean, bubbles generally coexist with ample liquidity and while this may have a mixed effect on coupons (depending on what level the inflation is), I think covenants would be more relaxed in a bull market/bubble to encourage lending and keep the liquidity tap on. Before the bubble pops, there would be several ‘hot’ investment avenues, perhaps forcing covenants to be more liberal in favour of the investor. Just a view – maybe I am missing a point. What’s your view?

    Jimmy Dotiwala, CFA

    1. Hi Jimmy,

      Thanks, as always, for taking the time to respond to the post. In answer to your question, it has been my experience working in the United States that covenant creep is an expression of a strong sellers’ market, where they get to dictate the terms of every aspect of the engagement. Yet, in the back of my mind is liquidity, just as you suggest. Meaning that ‘cash is always king.’ If you want for me to take on the risk of illiquidity then terms need to be favorable to the buyer. When the tension in this relationship favors the seller, it usually is a sign of bad things to come in my experience. As for keeping liquidity happening…nothing keeps liquidity and markets going like a well-functioning pricing mechanism 🙂

      Yours, in service!


  26. Ali says:

    well , i think all these signs are happening now .

    i bet right now we are in a bubble and the market right now is busy forming the top , so i’ll go short .

    thanks jason for such a great article .

    1. Hello Ali,

      Thank you for your kind words, and for taking the time to share them with me.

      If you end up shorting securities, best wishes for success.

      Yours, in service,


  27. I think an obvios question is….. Doesn’t this fit bitcoin markets to the last bit? Thoughts?


  28. Rowan Williams-Short says:

    Excellent article – thank you Jason.

    Allow me to add another two anecdotal signals: When sector analysts at stockbrokers almost all ask to be reallocated from “old economy” sectors to whatever is hot, there’s a bubble. During the late stages of the dot-com / TMT bubble in South Africa, there was barely a sell-side commodities or precious metals analyst left, and the big bonuses were going to the TMT analysts (who shamelessly punted IPOs being arranged by their own firms). Murphy had the last laugh: as TMT stocks collapsed, stocks of diamond and platinum producers soared.

    Similarly, when there is only standing room at company presentations in some sector/s but as a buy-side portfolio you can arrange lengthy one-on-one time with CEOs of another sector, you should know what to do.

  29. Diksha Agarwal says:

    Sir, some say technology has made it easier for people to invest and hence everyone can now trade sitting on their couch!!!
    They give this as a reason for high valuations and reason why money is floating in the stock market..
    Is this a correct explanation of the current situation???

  30. askandaval says:

    I read this and articles like it back in the mid twenty-teens. I slowly removed my money from stocks, as I was fearful. It’s now 2021, and I think we all know I made a big, big mistake.

  31. Kirk Cornwell says:

    Financial (esp stock market) articles in papers and magazines that don’t usually have them. Stock discussions by people who probably shouldn’t own individual stocks. “If it’s in the “Journal”, it’s in the market.”

  32. john says:

    That’s a good list. The sign I look for is the leverage from OPM. In my experience and reading of history, there has been no bubble without the leverage of other people’s money. I also tell myself I may be off base wrong! But it does seem pretty good at sorting out whether there is a bubble or not. The challenge is that financial operators are endlessly inventive, so new leverage may not look like old leverage. One can be fooled.

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