The bursting of a bubble is something that makes many investors feel uneasy. In reality, it happens all the time throughout financial history, but sometimes we still believe it will never happen to us.

I’ve just read a story about bubble bursts that occurred in the past, and I’d like to share my understanding with you, because this is not just something from textbooks—it can genuinely affect our portfolios.

Simply put, a bubble burst is a situation in which asset prices rise to levels that no longer match their true value. When speculation and investors’ overconfidence keep pushing prices higher, all kinds of assets—whether stocks, real estate, or even digital currencies—can become targets of a bubble burst.

There are two very clear historical events that I want to talk about. The first is the subprime mortgage crisis in 2008 in the U.S., when housing prices surged wildly. Banks approved loans for people who were not able to repay. Investors began to speculate and rushed in because they thought prices would keep going up. But once borrowers started to default, the whole system collapsed—bubble burst—and it led to a global financial crisis.

The second is the Asian financial crisis in 1997 in Thailand, when the real estate market became excessively inflated due to borrowing from foreign countries at low interest rates. When the value of the Thai baht was devalued, foreign debt suddenly surged, and the bubble burst, causing severe economic hardship.

Now, I’ve noticed that the factors that lead to a bubble burst often come from a combination of several things. Low interest rates make it easier for people to borrow. New technologies or new investment opportunities excite investors. And when they see other people making profits, everyone rushes in. The reality is that asset prices are not driven by fundamentals, but by the psychology of speculators.

Bubble bursts usually go through five stages. First is the shift that happens when something new enters the market. Then prices start rising. Investors get excited. People speculate and push prices higher in an unreasonable way. In the end, people realize they’re not actually making money and begin to sell. When selling turns into panic, prices fall rapidly, and the bubble burst is all over.

For me, the best way to protect myself is to understand what we’re investing in. Before any investment, ask yourself whether you’re investing for reasonable reasons—or because you’re afraid of missing out. If it’s the latter, it may be time to be more cautious.

Diversifying your portfolio is a strategy that really works. You shouldn’t keep all your eggs in one basket. Investing gradually using a cost-averaging approach is also a good method. And importantly, keep cash on hand for future opportunities—when a bubble burst happens, it often creates better buying opportunities.

Ultimately, I think understanding the market and continuously following information is the best protection. Whether trading different assets on various platforms, or investing in general, knowledge is the most valuable tool. A balanced portfolio and good risk management will help us get through market crises safely.