Crashes and Bubbles

Crashes and bubbles refer to rapid changes in financial markets. A bubble occurs when the prices of assets, like stocks or real estate, inflate well beyond their actual value due to excessive investor enthusiasm and speculation. When confidence suddenly drops or reality reasserts itself, the bubble bursts, causing prices to plummet—this is a crash. Crashes can lead to rapid economic downturns and widespread financial losses. Both phenomena highlight how investor emotions and speculation can temporarily distort markets, emphasizing the importance of cautious, well-informed investing.