One of Warren Buffett's favorite investors listed the ingredients for a bubble — and warned many are present today
- A benign environment - Good times make investors complacent.
- A grain of truth - The catalyst of a boom is typically real, but it gets overblown.
- Early success - The folks who made big gains early on will turn to the so-called "fool in the end" to cash out of their investment.
- More money than ideas - Folks pour money into lackluster investment ideas because of a glut of capital.
- Willing suspension of disbelief - People convince themselves that "this time is different" and a correction could never happen.
- Rejection of valuation norms - Think bubble. This is when people start saying the price of an asset is never too high to get in.
- The pursuit of the new - Young people or new entrants start making more money than everyone else.
- The virtuous circle - When people think the truths underpinning an asset will never change and can only push its price higher.
- Fear of missing out - FOMO can be a powerful thing. So powerful that when all the other ingredients are present, people will ignore them because they don't want to lose out on making money.