Edward Quince's Wisdom Bites: Razor

 

Is it a bubble, or just expensive?

David DeRosa suggests applying Occam’s Razor: start with the simplest explanation.

Expensive Is Not Irrational

Prices can rise for good reasons: technological change, supply shocks, increasing returns to scale. Labeling everything a bubble is lazy analysis.

But when prices detach entirely from plausible cash flows, the simplest explanation is often mass belief.

Timing Is the Trap

Bubbles can last longer than skeptics remain solvent. Being right too early is indistinguishable from being wrong.

The Lesson

Be skeptical without being cynical. Don’t short stories just because they sound ridiculous. But don’t abandon valuation because “this time is different.”

XTOD

“The most dangerous words in investing are: ‘this time is different’.”