There is a peculiar psychological danger that appears whenever financial markets become dominated by a powerful investment story, like back in the dot-com boom of the 1990s.
It does not begin with a stock market crash. It often begins with something much more out of the ordinary.
A few companies perform exceptionally well. Their earnings grow rapidly. Their industries attract enormous amounts of capital. Their share prices rise drastically. Investors who already own them become much wealthier and more confident. Financial media begin discussing them constantly. Other investors start looking at the returns they missed.
Then comes the dangerous question an investor can ask themselves: “why didn’t I buy this earlier?”
That question can quietly change an investor's behaviour.
An investor who previously insisted on sensible valuations may begin accepting a much higher valuation. Another investor who normally waits patiently for attractive opportunities may suddenly feel that waiting is equivalent to losing money. Another investor who has watched another stock rise 200%, 500% or more may begin calculating how much wealth could have been created if only he had bought it earlier.
The psychological comparison shifts.
“What is this business worth under conservative assumptions, and what return can I reasonably expect from today's price?”
“How much more can this stock rise and how can I take advantage of it?”
That is a fundamentally different question.
At the other extreme, another investor may look at the same market and reach an equally dangerous conclusion. He sees sky-high valuations, very aggressive expectations and speculative behaviour. He becomes convinced that the market is irrational and decides that the collapse is obvious. Rather than simply refusing to participate, however, he attempts to profit from the decline through short positions, leveraged inverse ETFs, options, futures or other derivatives.
Is afraid of missing the boom.
Is afraid of missing the crash.
Both can become prisoners of the same psychological error: they become emotionally attached to a market outcome.
For a long-only, long-term investor belonging to Charlie Munger’s Quality School of Value Investing, there is another path. That path does not require predicting whether artificial intelligence will transform the economy faster or slower than expected. It does not require trying to call the stock market top or predicting precisely when semiconductor stocks will peak. It does not require shorting the market or purchasing leveraged inverse products.
It requires something much less exciting and much more difficult psychologically: controlling position sizes and valuation risk, maintaining financial quality, preserving optionality and remaining prepared to own what everyone else may temporarily dislike.
This is the logic behind de-risking from highly concentrated themes while increasing exposure to high-quality, undervalued businesses in less fashionable industries. It is also where Nick Sleep’s concept of the anti-bubble becomes particularly useful.
Nick Sleep's anti-bubble
Sleep observed that when there is a frenzy around one area of the market, there can be an anti-bubble elsewhere. During the dot-com period, he pointed to companies with steadily increasing cash flows that investors had largely discarded in favour of exciting technology businesses.
The central insight is much broader than the dot-com era. Markets do not merely create expensive assets. They can simultaneously create neglected assets. And sometimes the neglected assets offer the more attractive risk-adjusted opportunity precisely because so much investor attention and capital have moved elsewhere. That observation matters enormously in today’s environment.
The First Trap: Regret After a Stock Has Already Risen
Consider the investor who watches a stock such as AMD, Palantir Technologies, TSMC, SanDisk or Dell Technologies rise spectacularly. Perhaps he followed the company years ago. Perhaps he even considered buying it. Perhaps he concluded that the valuation was too demanding. Then the stock continues rising.
This creates a very uncomfortable psychological situation. The investor's original analysis may have been perfectly reasonable. Yet the market's subsequent rise creates the illusion that the analysis was wrong. That distinction is critical.
A stock can rise enormously after an investor correctly concludes that it is too expensive. The fact that a stock continues rising does not retrospectively prove that its earlier valuation was attractive. Price and value are different variables. A business may become substantially more valuable while its shares become even more expensive.
For example, imagine a company whose intrinsic value under conservative assumptions is $100 per share. An investor refuses to buy it at $150. The shares subsequently rise to $250. The investor now feels foolish. But suppose the underlying business has improved and its intrinsic value has increased from $100 to $140.
Illustrative example
The investor's original decision may still have been correct. The market price increased by $100. The underlying value increased by only $40. The investor has confused an increase in price with an increase in fundamental value.
This is one of the most dangerous mistakes in investing because it can transform a previously disciplined investor into a momentum stock chaser. The internal dialogue becomes:
And then the investor buys. The purchase is psychologically different from an ordinary investment. It is partly an attempt to repair a past regret. That is dangerous. The investor may believe he is buying the company. In reality, he may also be buying to resolve his own unresolved regret.
The Second Trap: High Conviction Turning Into Speculation
The opposite behavioural reaction is equally dangerous. Some investors see a very highly valued sector and become convinced that a collapse is coming. Perhaps they believe AI spending is very excessive. Perhaps they think semiconductor valuations have become very irrational. Perhaps they believe investors are extrapolating current growth rates too optimistically too far into the future.
These concerns can be intellectually reasonable. The danger emerges when the investor moves psychologically from “I do not want to own this” to “I must bet against this.” Those statements are completely different.
Has limited opportunity cost.
Introduces potentially unlimited timing risk.
A long-only long-term investor can say “I cannot justify this valuation, so I will not buy it.” He can then wait. A short seller must eventually be right about both direction and timing. That is much harder. A stock can remain overvalued longer than expected. A sector can remain irrational longer than expected. A great or exceptional company can continue beating expectations strongly while looking expensive for many years. A short position can lose money for multiple years while the underlying thesis remains intellectually sound.
The Michael Burry case study
This shows that an investor may be right about the medium-term negative trajectory of a sector's stocks or the stock market in general, but it will take several years for their prediction to come true and for them to make great profits, and in the meantime, they incur substantial opportunity costs.
The problem with short-selling is that even experienced short-sellers will incur substantial to great losses if they are wrong, as short-selling is inherently a financial endeavour with limited upside and unlimited downside. That is why value investors do not short any stock, sector or the stock market in general, and stick to a disciplined, long-only, long-term investing strategy.
This is a crucial point for inexperienced investors. Knowing that something is very expensive or expensive does not automatically provide a very profitable or profitable short trade.
Even if some investors are convinced that a bubble exists and the evidence supports them substantially to the detriment of optimistic growth and momentum investors, the economic and financial data does not tell them precisely when the bubble starts deflating and when the deflating ends, as even the largest hedge funds aren’t capable of knowing such things in advance. Knowing that expectations are excessive does not protect you against another 50% rise before the eventual decline.
The South Korean Warning
South Korea provides an unusually relevant contemporary case study because developments there during 2026 illustrate how technology enthusiasm, concentration, leverage, financial products and investor psychology can interact.
The Korean market experienced an extraordinary AI-led rise during the first half of 2026. Samsung Electronics and SK Hynix became exceptionally important drivers of the KOSPI, while the unchecked growth of leveraged ETFs added another layer of financial exposure.
The 2026 KOSPI arc
Figures independently corroborated across multiple sources including Google Finance, Reuters, the Korea Herald, Bloomberg, and the Korea Economic Institute of America.
The Bank of Korea subsequently warned about risks from high-risk AI-related investment and the rapid growth of leveraged products linked to major technology companies. The central bank specifically noted that leveraged investment in domestic stocks had expanded through both domestic and international markets, creating additional channels for market spillovers.
This is an important case study for investors to take note of.
The lesson is not: “AI is a bubble.” The evidence does not establish such a universal conclusion beyond reasonable doubt.
The lesson is: when a powerful investment theme becomes combined with high concentration, leverage, derivative products, strong recent returns and retail enthusiasm, the market's mechanical behaviour can become much more unstable.
That is a fundamentally different proposition. A company can be excellent. Its industry can have outstanding long-term prospects. Its earnings can continue growing. And yet its shares can still experience a violent decline. Those statements can all be true simultaneously.