Why Stock Markets Crash

[twacowfca]

          There seems to be a bubble of interest among the members

    of this board in..........BBBBBubbles

 

          Why Stock Markets Crash by Didier Sornette is the most

    insightful book for understanding bubbles : how they begin,

    inflate and when they will predictably pop/crash.  I have used

    his models successfully more than once to time exits from

    positions and markets quite profitably close to the top of the

    bubbles.

 

    For example, I was 70% to 90% cash in 1997-1999 and completely

    out of the market when the mkt crashed in 2000-2001

    because bubbles scare me.  During the recent unpleasantness,

    however, with my new understanding of bubbles, I was

    able to work through the volatility successfully with better

    results than if I had gone completely to cash in the summer

    and fall of 07. :)

 

    Since Sornette published his book his models haven't

    worked quite as well as before.  But they are still very

    helpful if you make allowance for the observation that

    intervention by financial authorities may sometimes alter

    the dynamics of a bubble.