The burst bubble era is one of the terms that make investors shiver, but if you truly understand it, it might help you avoid losing a lot of money.

It occurs when asset prices soar to unreasonable levels, whether stocks, real estate, or even digital currencies. Prices keep rising because people rush to buy in hopes of selling at a higher price later, but it’s unsustainable. Eventually, people realize that prices are artificially inflated, and when everyone starts selling, the bubble bursts.

Looking at history, the 2008 subprime mortgage crisis is the clearest example. Mortgage loans were given without standards. Everyone borrowed money to buy houses for speculation. Financial instruments linked to these loans also became highly popular. House prices kept climbing, but once borrowers started defaulting, the entire system collapsed. Non-performing loans worldwide reached $15 billion. The bubble was driven by speculation and unfounded beliefs.

In Thailand, the 1997 Tom Yum Goong crisis is a similar example. Foreign money flooded in, and the real estate market boomed. Everyone saw profit opportunities. But when the baht was devalued on July 2, 1997, everything collapsed. Foreign-denominated debt soared dramatically. The bubble burst, and the Thai economy plunged into a severe downturn.

There are several types of bubbles you should know. Stock market bubbles result from opportunistic investments. Real estate bubbles are natural. Lending bubbles come from excessive borrowing. Commodity bubbles happen from intense trading.

What you need to understand is that the bubble burst cycle has five stages. The first is the movement—something new enters the market, such as technology, low interest rates, or a new industry. Next is the uptrend—capital flows in, and prices surge. The third is excitement—people believe prices will keep rising. The fourth is profit-taking—people start locking in gains. And finally, panic—everyone sells simultaneously, and prices fall rapidly, revealing the bubble burst.

To protect yourself, review your objectives first. Are you investing because you truly understand it, or just afraid of missing out? Diversify your investments. Don’t speculate excessively. Invest gradually, not all at once. Keep cash reserves to seize opportunities after the bubble bursts. Most importantly, understand the market you’re investing in. Always study the data, whether through fundamental analysis or price trend observation.

The cause of bubble bursts comes from speculative behavior and unfounded beliefs. When prices rise, people rush to buy without considering if they are overvalued. By the time they realize it, it’s too late—the bubble has burst. Therefore, what we should do now is prepare ourselves, diversify risks, increase income opportunities from multiple sources, and learn from the history of past bubbles to avoid becoming victims next time.