IN his famous speech on "Irrational Exuberance", former Fed chairman Alan Greenspan commented about how difficult it was to recognise the characteristics of bubbles if we saw them. He reckoned back then that it's not really possible.
The maestro's conclusion that one cannot time the top of a bubble is spot on. The timing of his famous speech, at the end of 1996, proves his own point, since the bull market didn't end until three years later.
However, Greenspan's observation that bubbles cannot be recognised while they're happening is wrong. Investors need to be vigilant for very large price gains that are not anchored on any fundamental changes, but rather on the expectation of vast profits in the...
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