“Good afternoon, sir. I’m a broker with Churnham & Burnham, and I’d like a few moments of your time to discuss an extraordinary investment opportunity. It’s an asset that everyone is buying—your friends, your neighbors, teachers, firemen, doctors, lawyers, and even your humble broker.
“Not only that, but it’s an exceptionally long-lived asset. Once you own it, you’ll be getting dividends for your entire working life.
“While it’s not as cheap as it used to be—in fact, it’s going up in price at about twice the rate of inflation—it’s never been easier to get government-subsidized loans to purchase it. In fact, third parties may pay for some or all of it for you!
“The asset is, of course, a college education. Now, wouldn’t you like to review the prospectus?”05.1.10
In the future, historians will stop using the word “bubble,” because it refers to two opposite phenomena:
• In an equity bubble, investors have limitless optimism about the future. They expect many of the companies they invest in to fail, but believe that the 95th- or 99th-percentile performers will more than make up for this.
• In a credit bubble, investors have limitless faith in the status quo. They expect volatility to decrease, and they believe they can estimate returns with increasing accuracy. If they want higher returns, they know they can use leverage—but for the most part, investors celebrate the middle of the bell curve, and expect the tails to cancel each other out.
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