A Bubble Test

When you buy an asset purely on the expectation that someone exists that will pay more than you, you are speculating and not investing.

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“So investors can begin an informal test for bubble conditions by examining their own motives for buying a stock. If we are working from some reasoned appraisal of what the company might earn in five or 10 years, based on a study of its business model, we can hope we are on solid ground. If it's because ``they're talking about a price target of $500,'' probably not.

So too with houses, which in their essence are places for people to live in, not price-appreciation vehicles. It's a reasonable certainty that people will always need a roof over their heads; price appreciation is a wish, not a need.”

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