From Morgan Housel at _Collaborative Fund: The drive towards financial excess is an inevitable part of how markets work. There are two reasons why. One is that the most important variables of investment returns are unknown. How much will investors pay for this asset? How much debt is too much? How high do interest rates need to go before businesses stop investing? These are more psychological than analytical, so there are no predictable answers. And when there are no predictable answers the only way we can identify the "breaking point" is to go beyond it, then look back and say, "Oh, OK, apparently 50 times earnings was too much", which is something we didn’t know at 49 times earnings. The only way to know how much food you can eat is to eat until you’re sick. Same for markets, which occasionally vomit. And we have to find that breaking point because until we find it there’s potential profit on the table, and market potential will always be tested. Put up a sign that says "There’s p...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.