Everyone with life savings to lose must continually remind ourselves of what financial course is prudent for us and our goals and then not allow ourselves to be distracted off plan by those around us. This article articulates the issues and risks facing individuals extremely well: Real talk. Read the whole thing here: The reasonable formation of unreasonable things. Here’s a taste:
Bubbles do damage when long-term investors mistakenly take their cues from short-term traders. It’s hard to grasp that other investors have different goals than we do, because an anchor of psychology is not realizing that rational people can see the world through a different lens than your own. When momentum entices short-term investors, and short-term investors dominate market pricing and activity, the long-term investor is at risk of seeing rising prices as a signal of long-term worth. Rising prices persuade all investors in ways the best marketers envy. They are a drug that can turn value-conscious investors into dewey-eyed optimists, detached from their own reality by the actions of someone playing a different game than they are.
Few things matter more in investing than understanding your own time horizon and not being persuaded by the price actions caused by people with different time horizons. No matter what kind of investor you are, the key to success is not participating in a game other than the one you intended to play. And you can only do that if you make an effort to identify what games the people surrounding you are playing, separating them from your own. It is the only way I know of to have a reasonable shot at not getting sucked into bubbles in the first place.