What Burton Malkiel’s Favorite Bubble Is – Retire Sooner Highlight

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Hey what is your Bert what is your Favorite bubble is it if you were to Talk about a bubble a modern versus one Of long past what is what is the best Example of a bubble Uh a bubble really exists when um Uh Some uh asset class some stock uh it Just gets uh completely uh divorced from Uh reality And Even when the underlying instrument Uh is a good instrument And My favorite one just from the standpoint Of an example is not that well everyone Knew this wasn't a real company but this Happens with real companies and people Don't remember that Amazon Lost 95 of its value Microsoft lost 95 of its value because When stocks just sell at uh hundreds of Times uh earnings uh nobody can grow That fast I remember and I think probably uh this Would be my favorite example uh that I Was on an investment panel uh at the end Of 1999 and Um uh at the end of the panel the Moderator said please tell me what your Favorite uh investment is for the future And of course I set a broad-based index Fund and the other panelists all said Cisco Systems uh Cisco Systems uh was

Selling at I don't know 200 times Earnings but it was a sure thing because The internet was going to be the thing Of the future which it was and Cisco Made the switches and backbone of the Internet it was called and Cisco lost uh Uh about 99 percent of its value and Cisco today uh is not uh is not uh Selling at the price that it sold at in January of 2000 it's probably uh about Half of what it was uh then and what you Realize is there's just so much growth That is reasonable I get a calculation If somebody Took the growth rate that was Anticipated for Cisco which was Something like 15 a year for uh 25 years And you thought that the GDP the country Was going to grow at five percent which Was its growth rate Then if Cisco kept growing at 15 a year Uh in uh 30 years it would be bigger Than the GDP that that this is kind of My favorite example that and Cisco was a Real company and it's a real company Today but Just when valuations uh get uh Divorced from reality uh that's uh when You want to uh Really be careful and I can't tell you How many people said oh you don't want An index fund I'm going to put Everything in Cisco Systems and uh I'll

Have uh much more money than you

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