The bursting of a bubble is a phenomenon that investors must take seriously, because it has occurred again and again throughout market history.

In fact, a bubble forms when the price of an asset rises above its true value—whether it is stocks, real estate, or even crypto. The main causes are speculation, investors’ excessive confidence, and the belief that prices will keep rising endlessly. But what’s most important is that this kind of irrationality cannot last forever.

Let’s look at an example from history. In 2008, the U.S. subprime mortgage crisis was triggered when banks approved home loans for people who were not capable of repaying them. General investors rushed in to buy homes for speculation, and real estate prices soared wildly. Financial instruments tied to these loans also became popular. But when borrowers began to default, the entire system collapsed. The bubble burst, and global bad debt rose to as high as $15 billion. The impact spread throughout the world economy.

In Thailand, we also have lessons from the 1997 Tom Yum Kung crisis. At that time, interest rates were unusually high, but the real estate market was booming because foreign money poured in. The real estate bubble inflated rapidly until July 2, 1997, when the Thai baht was devalued. Debt denominated in foreign currencies surged, the bubble burst, property values fell sharply, and many investors who had borrowed heavily were unable to repay their debts. The Thai economy then suffered a severe downturn.

Bubbles are easy to understand: if you think of them as balloons inflated beyond capacity, when they burst, everything collapses immediately. There are many factors that create bubbles—low interest rates, a strong economy, new technologies, or even a shortage of assets. All of these attract investors to flood in. Herd behavior, group mentality, and excessive optimism cause prices to rise far above their true value.

There are 5 fairly clear stages. First, something new and exciting enters the market—perhaps technology, low interest rates, or a new industry expected to change everything. Second, investors rush in, fearing they’ll miss out; capital pours in, prices rise, and a positive feedback loop forms. Third, a toxic sense of excitement takes hold—everyone believes prices will keep increasing forever, with no end. Fourth, some investors realize that prices really have risen too high and start selling to lock in profits; prices begin to fluctuate. Fifth, panic sets in—everyone knows the bubble is about to burst. A wave of panic selling occurs, and prices fall rapidly and severely.

So how do we protect ourselves? First, you need to review why you are investing—are you investing because you’re afraid of missing out, or because you truly understand the asset? If it’s the former, you may be part of the problem. Second, diversify your investments. You should not put all your money into a single type of asset. Diversification helps reduce losses when a bubble bursts. Third, limit speculation. If you think a bubble is forming, speculative assets will be the first to drop. Fourth, invest gradually rather than all at once. This approach helps you avoid buying at the peak of the bubble.

Fifth, keep cash on hand. When a bubble bursts, there is an opportunity to buy assets at lower prices. It also serves as a safety net if you need to sell during an economic downturn. Lastly, understand the market: follow information, do research, and only decide to invest after you’ve thought it through. Knowledge is the best protection.

In summary, a bubble bursting is easy to understand: it is when prices rise above their true value until one day it finally bursts. The result is that prices fall quickly. Investors who are unprepared will lose a large amount of money. Therefore, what we should do is prepare well, diversify risk, avoid following the crowd, and continuously learn about the market—because the phenomenon of bubble bursts will definitely happen again.