Right now, I see people talking about “bubbles” very often, but in reality, many people may not understand what they are and how they happen. It’s not just a “scary” word that investors use—it’s a phenomenon that has repeated itself again and again throughout economic history.

Simply put, a bubble forms when the price of an asset (whether stocks, real estate, or even digital currency) rises above its true value. When people see prices going up, they rush in, hoping to profit quickly. But this rising price doesn’t come from strong fundamentals—it comes only from demand and speculation.

I want to give two examples to show just how serious bubbles can be. In 2008, the U.S. real estate market saw a massive bubble. Banks approved loans for people who couldn’t repay them. But because housing prices surged, people even took out loans to speculate. When the bubble burst, the expected bad debt across financial institutions worldwide reached up to 150 billion dollars, leading to a global financial crisis.

And in Thailand— in 1997, during the Tom Yum Kung crisis—the situation was similar. The real estate market boomed, interest rates were high, and foreign money flowed in. Everyone thought prices would keep rising. But when the baht was devalued, debt denominated in foreign currencies skyrocketed massively. The bubble burst, housing prices fell sharply, and investors who had borrowed heavily could not repay their loans.

Today, there are many types of bubbles—not just in real estate. There are stock market bubbles where stock prices jump beyond their true value. There are commodity bubbles, such as gold, oil, or even digital currency, whose prices swing wildly up and down. There are also credit bubbles caused by excessive lending without any control.

So why do bubbles burst? In fact, it’s caused by many factors combined. Low interest rates make it easier for people to borrow. Growing markets attract capital from overseas. New technologies or new products make people excited—but psychological factors also play a role. People feel FOMO (fear of missing out). They see others making money and want to join in. No one thinks prices will fall. Everyone believes they will get out of the market before it collapses.

Bubbles usually go through five stages. The first is displacement: something new enters the market—perhaps a technology, or major policy changes. Then comes the uptrend, when more people rush in to invest and prices start to rise. Next comes excitement: everyone is optimistic and believes prices will keep going up. Prices reach levels that are unreasonable, but people remain confident.

Then, at some point, some people realize that prices are too high and start selling to lock in profits. Prices begin to fluctuate. This is the first sign. When more and more people become aware that the bubble is about to burst, panic sets in. Everyone tries to sell immediately, causing prices to drop rapidly. The bubble officially pops.

So what can we do? First, we have to ask ourselves: why do we want to invest? Are we investing because we understand that asset—or because we’re afraid of missing out? If it’s the second reason, it may be a sign that we’re helping to create the bubble.

The most important thing, in my view, is diversification. Don’t put all your money into just one type of asset. If you suspect a bubble is forming, reduce speculative investments. Try dollar-cost averaging—invest small amounts over time, not all your money at once just hoping for quick profits.

Keep some cash on hand. It gives you options when the bubble bursts. It also serves as protection if you need to sell assets during a market downturn.

Finally, knowledge is the best protection. Keep up with news, read and analyze before deciding to invest. Whether you invest in stocks, real estate, or digital currency, a solid understanding of the market and careful analysis can greatly reduce risk.

In summary, bubbles form because prices rise above their true value due to speculation, excessive confidence, and increasing demand. It’s not something we can completely stop, but we can prepare ourselves by diversifying, learning more, and not getting trapped by FOMO—so we can pass through market cycles more safely.