Family Money: How I Got Burned by Beanie Babies
In this decade, we have had more than our share of big-time booms and busts: the tech bubble, the housing bubble and, this year, what Warren Buffett has called the Treasury bubble.</br></br>For some years now, I have been a student of these extreme financial cycles. In the 1980s, I witnessed firsthand the Texas real-estate bubble and covered companies crushed in the junk-bond bubble. I wrote a book about the crash of 1929. And to my terrific shame, at the top of an inflated market, I once paid $50 for a $5 Beanie Baby named Peace.</br></br>In studying what drives bubbles, I've come to believe that they follow fairly regular patterns. If we could learn to recognize these, we might be more astute in reacting and adjusting our own behavior. And even if we can't see beyond the excitement they generate, there are underlying lessons for investors.</br></br>-- Fertile ground. The biggest bubbles appear to develop during periods of rapid and radical innovation, which may leave us more vulnerable to accepting the bizarre rationalizations that often accompany financial speculation.</br></br>In the 1920s, the automobile came into its own, and many homes were wired for electricity. Radio wasn't around at all in 1920; by 1929, it was in one of three households, bringing entertainment, music and headlines to millions. Amid all that, there were two tremendous financial bubbles -- the 1925 Florida land grab and the roaring stock market that preceded the crash.