NPR also did a great story on bubbles and they question if gold is a bubble. In the NPR story they discuss about an experiment where a group of college students are turned into stock traders. They are given one stock, which will release 10 rounds of dividends, and every round will release about a dollar of dividends. Therefore the fundamental value of the stock is worth 10 dollars at the start, and fore very dividend release it’s worth 1 less. Yet, according to the researcher, about 90% of the time prices of the stock can be wildly different than the fundamental value. For example, there could have been 3 rounds of dividends, therefore the fundamental value is 7; yet the stock would trade for 15 dollars a share. Yet, everyone knows, eventually the the stock will be worth 0. P
Pretty interesting stuff huh?