I just noticed that many people still don’t really understand what a bubble burst is, so they end up investing without realizing it. Today, I’d like to share my understanding of this with everyone.

A bubble burst happens when the price of an asset rises to an unrealistic level, and then crashes down rapidly. It occurs because investors keep buying in the hope that the price will keep going up. But this hope isn’t built on a solid foundation. When the truth comes to light, everyone tries to sell at once, so the price swings downward uncontrollably.

I still remember the Tom Yum Kung crisis in 1997 in Thailand. At that time, supplies and the economy were booming. In those days, real estate was booming too. A lot of foreign money flowed in. Everyone saw house prices rising steadily, so they rushed to buy to speculate, not to live there. When the baht depreciated, the foreign-currency debts also surged, and the bubble burst without any preparation. Many investors ended up owing debts they couldn’t repay.

In the US in 2008, there was something similar to the subprime crisis. The first clue was that mortgage loans were given to people who couldn’t make the payments, because banks expected house prices to keep rising. But when those borrowers started defaulting, the whole system collapsed. Bad debt across the world increased to 15,000 million dollars. This is the risk of an economic crisis.

Bubbles come in many types. They can be found in the stock market, real estate, commodities, and even cryptocurrencies. When prices rise beyond what’s truly reasonable, the bubble will burst.

The way a bubble forms often begins with something new and exciting—low interest rates or cutting-edge technology. These draw investors in because they’re afraid of missing out. Prices then climb, and the higher they rise, the more people buy to speculate, so the bubble keeps inflating until it reaches a point where it’s no longer sustainable.

I think the main reason is investors’ behavior: herd mentality and FOMO that makes everyone lose the ability to think rationally, along with psychological biases that cause us to see only the information that supports our beliefs. These create an unsustainable cycle.

So I want to suggest ways to protect yourself. First, review whether you’re actually investing or just following the trend. Second, diversify your risk—don’t put all your money into a single asset. Third, consider Dollar Cost Averaging: invest smaller amounts regularly instead of putting all your money in at once. Fourth, keep some cash for opportunities to buy when prices drop.

Most importantly, you need to understand the market you’re investing in. Do serious research before making any decisions, not just based on feelings. If we understand how bubbles form, we can avoid getting caught in the trap of their “tentacles.”