TIP823: From Railroads to AI: The Timeless Patterns Behind Market Bubbles w/ Kyle Grieve

**SPEAKER_1** (0:00)
You're listening to TIP.

**Kyle Grieve** (0:03)
Have you ever lost money on a stock that was clearly in a bubble, but you didn't realize it until it was just too late? The most dangerous bubbles are the ones that never look obvious in the moment. Today, as we're seeing a massive shift in capital towards AI, I'm starting to hear a very familiar idea surface again. That belief is that this time is different. This topic fascinates me because, as an investor, I'm constantly trying to balance two competing goals. I want to both capture as much upside as possible in my holdings, while also managing the risk of being exposed to a bubble. I don't really view bubbles as just some sort of theoretical risk. I see them as a very real and recurring threat that every single investor eventually faces, no matter what they invest in.
There comes a point where a rapidly rising share price feels exhilarating, but that excitement is often exactly when concern is most warranted.
What's interesting about bubbles is that they're not really that rare, and they're not unpredictable. They are simply a reflection of human behavior, combining things like greed, optimism, and social proof.
While bubbles are often associated with transformative new technologies, at their core, they're actually not about technology. They are about psychology. So today, we'll walk through Ron and Santa's framework for understanding how bubbles form. We'll explore the psychological forces that cause them to inflate so quickly, and, more importantly, what exactly investors can take away from these patterns to help protect themselves from being swept up when the next bubble feels impossible to resist. So if you've ever been burned by a bubble before, or if you're wondering whether we might be in one today, this episode will give you a clearer lens for gauging risk when excitement is running especially high. Now, let's get into this week's episode on bubbles.

**SPEAKER_1** (1:49)
Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you.
This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investment in the securities discussed. Now for your host, Kyle Grieve.

**Kyle Grieve** (2:34)
Welcome to The Investor's Podcast. I'm your host, Kyle Grieve, and today we'll be discussing bubbles, what makes them and how to identify them, and most importantly, how to protect yourselves from the next inevitable bubble. To discuss this subject, we're going to refer back to a book called Trend Watching by Ron Insana.
Ron has a very, very good foundation for how he perceives bubbles, and he has a really, really good framework that I think is worth understanding and getting into a lot more depth into to help investors really just protect themselves from bubbles, which 100% of the time end up badly for those who bought at the top. Now, there are a few reasons why a framework for looking at bubbles is just so essential today. It's not just about AI hype. I'll save that for later, but I have a very personal reason for thinking about bubbles. Since I own a really concentrated portfolio, I have to manage all my holdings very, very closely and ensure that they still offer a reasonable upside. So if a holding of mine gets into bubble territory, it's much more likely that I'm holding an asset that's about to go through a very precipitous decline rather than continue to climb up. Now, when something that I own suddenly surges in price, I get a mixture of excitement and fear.
It's exciting to know that the market is seeing what you are seeing and that maybe your thesis is being validated. But it can also be pretty scary to see a business go up 5x in a year and understand that the story is still growing fast enough that maybe holding rather than selling is a better choice.
The truth is, I want to understand this framework better so that I can protect myself. I never want to be the investor holding the bag after a 90% drawdown when it was very obvious that the stock's price was rising much faster than intrinsic value would have indicated. Since these bubbles tend to follow very predictable patterns, patterns that are outlined incredibly well in this book, I think that recognizing them isn't just some academic exercise, but that it's key to long-term survival. And since many listeners are in the same seat as I am, I figured it would be great to share the framework. So the first chapter of the book is titled, It's Never Different This Time. And I love the title because it feels like everywhere I look now, I'm seeing people saying just this. Every bubble that's outlined in this book or in other events follows an eerily similar narrative that this event is somehow different from the past. And because this time is different, investors can justify certain things, whether that's buying at unreasonable prices or even using excessive amounts of leverage. So today, I hear many investors saying that the S&P 500 is not a bubble, which I admit I probably actually agree with. But what I see as being as more dangerous behavior is assuming that the S&P 500's PEE ratio is the new base at which the index will live for into the foreseeable future. But here's the interesting thing. The PEE ratio of the S&P 500 at the end of 2025 was 31 times. So if I remove the Magnificent 7 and I just keep the awful 493, which I recently saw it referred to as, it's only 19 times earnings. So this shows that the average American business just hasn't really improved that much. The index as a whole is just being propped up by a few outperforming businesses that admittedly have some deep mounts. Now let's get into the first chapter and discuss why people believe that this time is different in the first place. So the first primary reason is that every new generation believes that it's smarter than the last one. As technology gets better and more sophisticated, investors enter the market. And you'd think that investors have begun getting smarter. But as history shows, that's not really the case. Whether you're looking at the Great Depression, Japan in 1989, the Great Financial Crisis, it's quite clear that investors believe that they had some sort of edge as time goes on. But that hedge still ends up in investors just losing their shirt when they ended up getting too greedy.