By John Grace
Contributing Columnist
In his 1952 memoir, former President Herbert Hoover described the late-1920s market frenzy as an “orgy,” a period when speculation ran wild, discipline vanished and risk was treated like a rounding error. Nearly a century later, the label still fits.
Today’s version just has better branding: AI euphoria, real estate fear of missing out, private market hype and the quiet assumption that central banks will always save the day.
History doesn’t repeat perfectly, but it often rhymes with a megaphone.
Bubbles don’t burst because people suddenly get smarter. They burst because reality shows up uninvited. Liquidity tightens. Earnings disappoint. Leverage gets exposed. And just like that, assets once described as “can’t lose” start auditioning for gravity. Think, Wiley E. Coyote and the roadrunner screaming, “How low can it go!”
So what do you do before the curtain drops?
Number one, respect math, not momentum. Don’t drink the Kool-Aid. It’s spiked.
If an investment requires perfect conditions to justify its price, it’s not an investment; it’s a wish. Revisit valuations, cash flows and assumptions. If they only work in a straight line up, you’re holding a story, not a strategy.
Secondly, build an exit before you need one. The worst time to decide when to sell is when everything is falling.
Define in advance what would cause you to reduce risk. That might be a percentage decline, a break in trend, or a fundamental shift. Discipline beats hope every time. It’s impossible to secure homeowner’s insurance when your house is on fire.
Third, liquidity is oxygen. Cash isn’t trash when markets turn; it’s optionality.
It lets you avoid forced selling and gives you the power to act when others are stuck. Investors who survive downturns aren’t always the smartest; they’re the most prepared.
Number four, diversification isn’t enough. In real downturns, correlations tend to converge toward one, meaning everything falls together.
A true defense includes the ability to step aside, not just spread bets around. Do you own more than three asset classes? Valued at $44 billion as of June 30, 2025, I count eight classes at the Yale Endowment Fund, with no more than 24% in any one place.
And last, plan for withdrawals like a hawk. If you’re taking income, significant losses in retirement can cause permanent damage.
Especially when taking mandatory required minimum distributions that increase annual withdrawals from traditional retirement accounts, no matter which way the market turns. Limiting drawdowns isn’t conservative; it’s essential. And you can sleep better, because you can’t spend what you no longer have.
Here’s the uncomfortable truth: bubbles feel best right before they break. That’s why so many stay fully invested until the damage is done.
Preparation isn’t pessimism — it’s professionalism.
Because when the next “orgy of everything” ends, the goal isn’t to be the last one dancing. It’s still to have a chair when the music stops. Then you’re ready to dance again. All night long.
John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.
LIFTOUT
If an investment requires perfect conditions to justify its price, it’s not an investment; it’s a wish.
