Why Warning about A Bubble for A Decade Is Completely Rational
The comments below are an edited and abridged synopsis of an article by Jesse Columbo
Columbo has often been criticized for warning of bubbles in the economy as the stock market surges year after year, but those criticisms are based on misunderstandings of his approach; he’s sure his analyses are correct.
The mistake that critics make is assuming that he is calling to sell the market and go short at the same time that he warns about a bubble. This is untrue; his goal is to warn about bubbles as early as possible for the purpose of warning society that it is going down the wrong path. He knows how destructive bubbles are to the economy and to society overall, and he warns about them in order to prevent another 2008-style crisis.
Although his goal is to warn about bubbles as early as possible, he doesn’t approach trading and investing the same way. He separates anti-economic bubble activism from tactical trading and investing. He is aware that shorting a bubble too early would completely wipe out any trader who is foolish enough to do so. He believes in trading with the trend and not against it, which is an approach that helps economic skeptics avoid the bad outcomes experienced by typical permabears who are short all the time.
Being an anti-economic bubble activist doesn’t equate to losing money. They are a much more sophisticated group than they are given credit for. Many of them are able to foresee powerful economic booms and bull markets well in advance simply due to understanding how these booms and bubbles form in fiat currency-based economies that are dominated by central banks. Although they are fully aware that shorting too early is risky, and that those bubble-driven market gains can be captured through use of trend-following trading systems, they still choose to warn about bubbles simply because they care about the societies they live in. Keep that in mind next time you feel tempted to taunt a stock market bear.