When talking about what a bubble economy is, I see that many people still do not truly understand. It’s not just about prices soaring high; it’s a dangerous cycle that repeats throughout financial history.

In fact, bubbles occur when asset prices such as stocks, real estate, or cryptocurrencies rapidly exceed their true value. The problem is that investors often chase short-term profits without understanding the assets, causing prices to inflate to unsustainable levels.

I observe that the main factors causing bubbles to burst come from various angles: excessive borrowing, low interest rates, and herd mentality. When people see others making profits, they rush in. No one wants to miss out. The result is capital flowing into the market, pushing prices to unreasonable levels.

Looking at past events clearly shows this. The 2008 subprime crisis was caused by mortgage lending to people unable to repay. Financial intermediaries created complex securities from these loans, causing the real estate bubble to inflate uncontrollably. When borrowers started defaulting, the entire system collapsed. Global bad debt reached $15 billion.

A similar story happened in Thailand in 1997. At that time, interest rates were very high, but the real estate market was booming. Foreign capital flooded in, and housing prices soared wildly. Everyone thought they could profit from speculation. On July 2, 1997, the Thai baht was devalued, and the bubble burst immediately. Many borrowers couldn’t repay their loans. The Thai economy plunged into a severe downturn.

There are many types of bubbles. Stock market bubbles occur when stock prices exceed their true value. Asset markets expand to include real estate, currencies, and even Bitcoin, which has experienced bubbles. Credit bubbles happen when lending expands rapidly without control. Commodity bubbles occur when prices of gold, oil, or metals rise uncontrollably.

When prices soar, five typical stages usually occur: First is the movement phase, where new technology or opportunities emerge. Second is the upward trend, with capital flowing in and prices rising. Third is the excitement phase, where investors become overly optimistic. Fourth is profit-taking, with some starting to lock in gains. Fifth is panic, where everyone tries to sell simultaneously, causing prices to fall rapidly, and the bubble officially bursts.

The question is, what can we do to protect ourselves? I think the first step is to review your objectives: invest because you understand the assets, not just out of fear of missing out. The key is diversification—don’t concentrate all your investments in a single asset class.

Another important point is to limit speculative investments when you suspect a bubble is forming. Try using dollar-cost averaging—invest small amounts over different periods instead of putting all your money in at once. Keep some cash reserves as well. This will help you take advantage of opportunities after the bubble bursts. Most importantly, understand the markets you invest in and continuously follow relevant information.

In simple terms, a bubble economy is when prices exceed their true value due to speculative behavior and herd mentality. It’s unsustainable and will eventually burst. Therefore, what we should do is prepare ourselves, diversify risks, and increase our knowledge about the markets.