Every Market Bubble Follows This Script

Prologue: The Playwright Who Saw Everything

In 1975, an economist named Hyman Minsky sat in his office at Washington University, staring at charts of financial crises spanning 400 years.

Dutch tulips. South Sea shares. Railway stocks. Florida land. Radio companies. And the crash that broke America in 1929.

Different centuries. Different continents. Different assets. But as Minsky traced his finger across each chart, he noticed something disturbing:

"Every crisis follows the same arc. The same psychology. The same delusion. It's as if humanity is performing the same tragedy over and over, with different costumes."

— Hyman Minsky

Minsky wrote down the five acts. Charles Kindleberger, a Harvard economist, later refined them in his masterpiece "Manias, Panics, and Crashes".

What follows is the script. Once you see it, you can never unsee it.

Displacement — "Something New Has Arrived"

A bubble cannot form around nothing. There must be a seed of truth — a genuine innovation that disrupts the old order and creates real opportunities.

This is the dangerous part: the displacement is usually REAL.

The innovation creates early adopter profits. These profits are earned. They are deserved. They attract attention.

And attention is the spark that lights the fuse.

Boom — "The Smart Money Piles In"

Word spreads. The early profits attract more capital. Sophisticated investors — hedge funds, venture capitalists, wealthy individuals — recognize the opportunity.

Prices rise. But here's the crucial detail: the fundamentals still support the prices. Growth is real. Revenues are growing. The story makes sense.

"In the Boom phase, the smart money isn't crazy — they're early. The asset really is undervalued relative to its potential. This is what makes the eventual mania so seductive."

— Charles Kindleberger, "Manias, Panics, and Crashes"

Media begins covering the story. Not yet breathlessly — but with increasing interest. Articles appear: "The Next Big Thing?" Analysts issue bullish reports.

Credit begins to expand. Banks start lending against the asset. Margin becomes available. Leverage enters the game.

The boom phase can last years. Dot-com boom: 1995-1998. Crypto boom: 2016-2020. Housing boom: 2002-2005.

But at some point, the script turns the page to Act III. And that's when the music changes.

Euphoria — "The Madness of Crowds"

Something shifts. The rational analysis of Act II gives way to pure greed. Prices disconnect from fundamentals. And a strange phrase appears:

"This time is different."

Those four words have preceded every financial catastrophe in history.

🚨 The 7 Warning Signs of Euphoria

"The market can remain irrational longer than you can remain solvent. But it cannot remain irrational forever."

— John Maynard Keynes

During Euphoria, the smart money is quietly selling to retail. Insiders are cashing out. IPOs flood the market. SPACs multiply. Everyone wants to sell you their shares.

The question isn't "Will it crash?" The question is "What will trigger Act IV?"

Crisis — "The First Cracks Appear"

It often starts with something small. A missed earnings report. A fraud revealed. A rate hike. A tweet.

The first 10-20% drop comes. But here's the script's cruelest trick: everyone believes it's "just a correction."

Liquidity dries up. Selling begets more selling. Margin calls force liquidation. Leveraged players get wiped first.

The "dead cat bounce" appears — a brief rally that tricks people back in before the final plunge.

"The crisis phase is where hope meets mathematics. Debt must be repaid. Margin must be covered. And when there are no buyers left, price discovery becomes brutal."

— Hyman Minsky

Collapse — "The Reckoning"

The final act is the shortest — and the most brutal.

Prices don't just fall to fair value. They overshoot. Panic selling drives prices below intrinsic value. What was overpriced at $100 becomes underpriced at $5.

💀 The Aftermath Across History

"I can calculate the motion of heavenly bodies, but not the madness of people."

— Isaac Newton (after losing fortune in South Sea Bubble)

How to Survive: Reading the Script in Real-Time

Now that you know the five acts, here's how to identify which act you're in — and what to do:

The Script That Never Ends

Here's the darkest truth: we will never stop performing this tragedy.

New generations arrive who didn't experience the last bubble. New technologies emerge that make old lessons feel irrelevant. New gurus appear who convince people that THIS time, the script doesn't apply.

But it always applies.

The question isn't whether there will be another bubble. The question is whether you'll recognize which act you're in.

"Those who cannot remember the past are condemned to repeat it. Those who can remember it... are condemned to watch others repeat it."

— Modified from George Santayana

Now you know the script.

The curtain rises every decade. Will you be in the audience? Or on stage, playing the fool?

The choice is yours.