I just realized why many investors are afraid when they hear the word “bubble burst”—what does it mean? Because this matter involves losing a huge amount of money, and it has happened many times throughout history. Understanding what a bubble burst is is extremely important for anyone who is going to invest.

Basically, what a bubble burst is happens when the price of an asset rises far beyond its real value—whether it is stocks, real estate, or even crypto. This rapid boom is driven by speculation and investors’ excessive confidence. Everyone thinks prices will keep going up, which makes prices soar in an irrational way.

There are many famous examples. Take the subprime crisis in 2008 in the United States. At that time, banks approved home loans for people who were not able to repay them. Many borrowers bought houses not to live in, but to speculate. Financial instruments tied to these loans gained popularity, which made the real estate market grow faster. When borrowers began to default, the whole system collapsed, with bad debts reaching up to 15,000 million dollars.

There is another interesting case: the 1997 Asian financial crisis in Thailand. At that time, interest rates were extremely high, but the real estate market was booming. Investors saw opportunities to make quick profits, and foreign capital flowed in to take advantage. The result was a real estate bubble that drove values to soar. When the Thai baht was devalued, debts denominated in foreign currencies skyrocketed. In this case, what a bubble burst is means a market with excessive leverage collapsing suddenly.

What a bubble burst is is not only about stock or real estate markets. There are many types. A stock market bubble occurs when stock prices rise beyond the true value of the companies. Asset bubbles expand to include real estate, various currencies both traditional and digital. A credit bubble occurs when lending expands rapidly, and a commodity bubble occurs when the prices of resources such as gold, oil, or industrial metals rise uncontrollably.

There are five stages in the formation of a bubble. First is the movement phase—when something new and exciting comes along, such as new technology or low interest rates. The second is the rising phase, when investors rush in because they fear missing out. The third is an excited feeling—people view the world in an overly optimistic way. The fourth is profit-taking—some people begin to realize that prices have risen. The final stage is panic—everyone tries to sell. Prices fall rapidly. The bubble finally bursts.

There are many factors that cause bubbles. Low interest rates stimulate borrowing. A strong economy attracts investment from overseas. New technology creates demand. A shortage of assets makes prices rise. But psychological factors are also important. Speculation and investing based on opportunities make prices go higher than their value. Group mentality makes people chase after each other, and conflicting thinking causes people to ignore warning signs.

So how can you protect yourself? Before investing, you should review your own objectives. Are you investing because you fear missing out, or because you truly have a plan? Diversify your portfolio. This is the best way to protect yourself. Limit speculative investments. If you suspect a bubble is forming, invest gradually instead of putting everything in at once. Use dollar-cost averaging. Keep some cash reserves to take advantage of opportunities after the bubble bursts. And most importantly, understand the market—stay on top of information and do research before making investment decisions.

In summary, what a bubble burst is is a phenomenon caused by prices rising beyond their true value, as speculators rush to buy assets believing that prices will keep going up. The bubble inflates, but this excess is not sustainable. Eventually, people realize the assets are overvalued; demand declines. When investors start selling off, prices fall rapidly, and the bubble bursts. Therefore, what we should do is get ahead of the situation, diversify risk, increase income opportunities, and study the market carefully before investing.