I’ve continuously pointed out the danger of asset bubbles because they commonly lead to a slippery slope of destructive behaviours, threatening the health and stability of individuals, businesses, and the economy.
After a dramatic wipeout in March 2020, stock prices rebounded into December 2021 before plunging into October 2022. Rebounding again, some sectors finally reclaimed their December 2021 high by January 2024; a few made a fresh high in early 2025, but that, too, was short-lived.
As of this morning, the widely held S&P 500 is -4% year over year and just 6.4% above its December 2021 peak. The tech-rich Nasdaq, which inspired so much mania, is -4.9% over the past year and -3.2% since November 2021.
Canada’s TSX, flat over the past year, is +5% since November 2021.
The economically sensitive small-cap S&P 600 index has fallen 27% since Trump’s election and is down 21% since November 2021.
In short, irrationally overvalued stock markets have performed as history promised, with a wild ride of volatility and miserably insufficient compensation.
Making returns even worse, participants have paid higher management and brokerage fees for the ‘risk-on’ experience, often while taking ill-advised withdrawal rates.
The bad news is that still-elevated valuations suggest further mean reversion is to come.
Continuing to take sober measurements and manage capital responsibly through full market cycles is mentally demanding, and can be unappreciated and mocked during bubbles. In a world full of bad financial advice and get-rich-quick schemes, it’s hard for the masses to steer clear.
Looking for fast-moving vehicles, many jump in with confident drunk drivers who have no brakes. It’s only after inevitable crashes that they see the harm.
I reviewed the setup for the current loss cycle in a Thoughtful Money video with Adam Taggart last November; see, Stocks are the most overvalued in 100 years.
It is never too late to learn from mistakes, but recovery requires enlightenment and resolve to make wiser choices. Yes, we can.
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