Reply #19: I'm not sure what you're not buying. Asset value should reflect income

[PeaceProgProsp]

potential.

The value of a stock should reflect its dividend/earning potential. When its valuation moves away from that and towards a point at which people think it will somehow move due to "irrational exhuberance" than you're living in a bubble that can pop.

Same with land. Its value should reflect its potential rental income with some adjustment for the fact that most people don't rent their primary residence ever. When the price people are willing to pay for a house starts to reflect the belief that t he house is going to climb $100,000 based on irrational exhuberance, then you're living in a bubble.

The short version: prices that are based on the idea that other people just irrationally want something and are willing to pay ridiculous percentages of their income to have it are just as likely to go down rapidly as they are to go up rapidly. If they're not based on income potential, then they're based on very easy to change psychological factors, and then you're risking wealth by counting on those shifting psychological factors to continue into the future.