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Comment by jakarta | Hacker News Reader

Centuries of financial crises and speculative contagions seem to be enough evidence for me.

If majority of market participants were value investors you simply would not have bubbles to the degree that we have seen historically.

Value investors buy assets at a discount to their intrinsic value and they derive that intrinsic value using conservative assumptions on factors such as liquidation value and future cash flows.

If majority of market participants were value investors you would not have had the Dutch Tulip Mania, South Sea Bubble, or more recently the Dot Com Bubble / pre-GFC highs reached in 2006/2007.

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If majority of market participants were value investors you simply would not have bubbles to the degree that we have seen historically

I'd like to see that quantified.

If 60% of investors were value investors and 40% were speculators, would we still get bubbles? I'm thinking yes.

In reality, most people are in the middle. Looking for value, but still mortal, fallible and susceptible to being persuaded that the flavour of the month really is the next big thing.

> If majority of market participants were value investors you simply would not have bubbles to the degree that we have seen historically.

There is an argument that bubbles are the result of overexpansion of credit. Granting systematic credit is the basic function of central banks.

Not really. Bubbles can easily occur in the absence of credit. I'm not sure how many people were borrowing money in the south seas or tulip bubbles, but probably not that many. Even in the first dot-com bubble (how quaint it sounds to say it now) most of the investing was being done by folks who had money rather than folks who were borrowing it.

The recent housing bubble, on the other hand, yes.

There was a monetary expansion during the tulip bubble (basically New World's gold + laws that made convenient routing that gold to the Netherlands).

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