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It's Becoming Tempting to Try Timing the Bubble Again

With stocks at a record and Tesla topping a $1 trillion valuation, this seductive though near-impossible idea is regaining currency.

Can you tell where it’s heading?

Can you tell where it’s heading?

Photographer: Ethan Miller/Getty Images

U.S. stock indexes are at all-time highs again. A Bitcoin will still cost more than $60,000. Tesla Inc. (likely revenue for this year: $51.1 billion) is worth $1 trillion. There’s a mighty plausible case that we have a bubble on our hands. So what?

The idea of timing a bubble is seductive, but it’s close to impossible in practice. The following chart shows the results of a perfect “bubble-timing” strategy that buys the S&P 500 Information Technology sector during a buying opportunity in January 1996, and switches everything to the Russell 2000 Value index on March 27, 2000, the day when tech stocks peaked. The returns anyone who made this trade would have produced are absurd, and explain why people stay in bubbles. They think they are going to be the ones to get out at the right time: