Even fundamentally sound companies get crushed when bubbles pop. Microsoft's stock took 17 years to recover its dot-com peak. Investors must consider the extreme opportunity cost of having capital tied up for over a decade just to break even, even if they believe in the company's long-term success.

Historical data shows no exceptions to the rule that an asset class reaching a two-standard-deviation (two sigma) valuation above its long-term trend will eventually return to that trend. This statistical certainty applies to stocks, bonds, commodities, and currencies, making severe drawdowns from such peaks inevitable.

The current market correction is a rolling cascade through different over-levered sectors. It began with Meg-7 stocks, spread to semiconductors, and is now hitting Korean retail traders. This sequential pattern indicates poor systemic liquidity, as capital is insufficient to support all assets at once, forcing painful rotations.

History shows that markets can remain irrational longer than investors can remain solvent. For instance, the Nasdaq was 40% higher at its post-crash low in 2002 than when media first called the dot-com market "nutty" in 1995. Selling too early, even with sound analysis, often means missing substantial gains.

Bubbles are created when assets like startup equity are valued astronomically, creating immense perceived wealth. However, this "wealth" is not money until it's sold. A crash occurs when events force mass liquidation, revealing a scarcity of actual money to buy the assets.

A practical definition of a bubble is when investor enthusiasm pulls all potential future cash flows and upside into the present-day price. This results in an asset that offers zero forecasted returns over a long period, making it a foolish investment.

When an asset sees a massive price surge, it's effectively a "price compression" that pulls years of expected returns into a short period. This raises the probability of future volatility or stagnant performance, as the future gains have already been realized.

Despite claims that AI has created permanent structural demand, the history of cyclical industries like semiconductors suggests caution. The commodity nature of these products and massive capital inflows make a future supply glut and subsequent price collapse almost unavoidable. Such "this time is different" claims often mark the cycle's peak.

Market bubbles evolve through predictable psychological stages. Phase one is buying an asset for its fundamental value. Phase two is using debt and leverage to acquire more of the appreciating asset. Phase three is pure speculation where investors, driven by greed, no longer care about the asset itself, only its potential for quick profit.