Do you like the phrase “bubble burst”? Most investors get goosebumps when they hear it, because it evokes memories of financial crises and massive money losses. In fact, bubble bursts have happened repeatedly throughout market history.

It’s simple: when the price of an asset—whether stocks, real estate, or even crypto—rises far above its true value to a level that can’t be sustained, the bubble will burst. Usually, prices are pushed higher by speculation, excessive confidence, and the belief that prices will keep going up forever. But this kind of excess can’t last long.

Let’s look at an example from history. The 2008 subprime mortgage crisis, caused by a real estate bubble in the United States, began with loose mortgage lending, which allowed people who couldn’t afford to repay their debts to get loans to buy homes. Many investors didn’t buy to live in the homes; they bought to speculate. Meanwhile, financial institutions created more complex financial instruments to make it easier for people to profit from rising home prices. The market grew quickly, and prices soared. But once borrowers started defaulting, the entire system collapsed. The bubble burst, and bad debts from financial institutions around the world surged to $15,000 million.

Here’s another example closer to home: Thailand’s 1997 “Tom Yum Goong” (Asian financial) crisis. At that time, interest rates were extremely high, but the real estate market was booming. That was because investors saw opportunities for quick profits, and foreign capital flowed in to take advantage of the growth. Real estate prices climbed uncontrollably. But when the Thai baht was devalued, debts denominated in foreign currencies surged. The real estate market had too much leverage, and the bubble burst. Investors who had borrowed heavily couldn’t repay their debts, and Thailand’s economy suffered a severe downturn.

What’s interesting is that bubble bursts stem from multiple factors that cause prices to deviate from their true value. Low interest rates encourage borrowing, strong economic conditions draw foreign investment, new technology boosts demand, and shortages of assets push prices higher. But psychological factors are truly the key culprit. Speculators rush in because they’re afraid of missing out. A herd mentality makes people follow the crowd. Everyone believes they can exit the market before it bursts.

Bubble bursts often go through five clear stages. First, when something new enters the market—such as new technology or a new industry that people believe will change the world. Second, prices start rising, as investors flood in because they’re afraid of missing out. Third is excitement: everyone is optimistic, and prices surge to levels that are not sustainable. Fourth, some investors realize that prices are too high and begin selling to lock in profits. Finally, panic sets in: when many people realize the bubble is about to burst, a wave of selling occurs, and prices fall rapidly.

So what can we do to protect ourselves? First, ask yourself why you’re investing. Are you investing based on solid analysis, or because you’re afraid of missing out? If it’s the second reason, you may already be part of the problem.

Second, diversify your portfolio well. Don’t put all your money into a single type of asset. Limit speculation. If you think a bubble is forming, reduce investment in risky assets, and invest gradually instead of putting everything in at once. Keep cash reserves so you can take advantage of opportunities after the bubble bursts. And most importantly, study the market thoroughly—understand the assets you’re investing in, not just follow the trend.

In summary, bubble bursts happen when prices rise above their true value due to speculation, excessive confidence, and various psychological factors. This is not something we can stop entirely, but we can prepare ourselves by diversifying risk, studying the market carefully, and not blindly chasing trends.