[In-Depth Look] Between Bubble and Boom, It's Time for 'Half-Beat Investment'

Nam Dong-jun, CEO of Tekton Investment Advisory

It was on October 14, 1996, when the Dow Jones Industrial Average surpassed 6000. After about seven years of a bull market, concerns about a market bubble were growing. Alan Greenspan, then Chairman of the U.S. Federal Reserve Board (FRB), shared these worries and decided to indirectly convey the Fed's concerns to the stock market. In December of that year, the term "Irrational Exuberance," which carried somewhat complex meanings, was prominently featured in the media. Although he was worried about a bubble, he found it difficult to categorically label it as such, revealing his dilemma. Even Alan Greenspan, who served as Fed Chairman for 18 years with goals of economic growth and inflation control, would have found it challenging to simply distinguish between a "bubble" and a "boom." Despite doubts and concerns, the U.S. stock market continued a stronger upward trend for three years and four months until the early 2000s.

Last September, after the COVID-19 pandemic, the stock market, which had been steadily rising, suddenly reversed into a sharp decline. The market was gripped by fears of a bubble as SoftBank Group's large-scale options trading was cited as the reason behind the rapid rise of U.S. tech stocks. The Nasdaq index, dominated by tech stocks, dropped more than 10% momentarily. Especially with increasing comparisons to the "dot-com bubble," fear intensified. However, five months later, stocks like SoftBank and Tesla, which led the decline at that time, are now trading at prices more than twice as high as then. The Nasdaq index has also hit new highs two or three times since.

Is it possible to distinguish between a speculative stock market bubble and a dynamic economic boom? It is not that simple. Bubbles and booms coexist as two sides of the same coin. Because these two aspects overlap, clearly distinguishing them is a difficult issue. Moreover, it is impossible to pinpoint the exact moment when a boom turns into a bubble. Therefore, anyone who can identify the peak or trough would have insight superior to that of a god(?). The problem is that many investors mistakenly believe they can predict that moment and invest accordingly. Their confidence is often boosted by experts who encourage them(?). Riding the market's momentum, investors' reckless challenges seem to continue today with the help of experts who clearly(?) explain the timing of sharp rises and falls.

What investors need now is not the prediction of inflection points or timing, which belong to the "divine realm." There is no need to increase psychological volatility, which is already unstable, through short-term and premature predictions. Worrying about bubbles during a rising market where profits must be made, or forgetting fear when minimizing losses during a bubble, is the most fatal mistake.

A "counterbeat flow" that is neither too early nor too late is necessary. This approach may be especially suitable in rapidly changing market conditions like those recently experienced. To achieve this, understanding the current situation is more important than focusing on the future. At this point, a counterbeat that sometimes steps ahead and sometimes steps back from a short-term perspective is needed. However, in the long term, one must always consider risks. The words of investment masters come to mind: when the music stops, be closest to the emergency exit. This is because while enjoying the boom, one must endlessly guard against bubbles.

This content was produced with the assistance of AI translation services.