The four phases of a bubble
Adapted from original graphic by Jean-Paul RodrigueUnlike pyramid schemes, which follow a rigid structure, financial
bubbles can be harder to analyse. However, economist Jean-Paul
Rodrigue suggests we can still divide a bubble into four main stages.
First, there is a stealth phase, where specialist investors put money
into a new idea. Next comes the awareness phase, with a wider
range of investors getting involved. There may be an initial sell-off
during this period as early investors cash in, like Newton did in the
early stages of the South Sea Bubble. As the idea becomes more
popular, the media and public join in, sending prices higher and
higher in a mania. Eventually the bubble peaks and starts its decline
during a ‘blow off’ phase, perhaps with some small secondary peaks
as optimistic investors hope for another rise. These bubble stages are
analogous to the four stages of an outbreak: spark, growth, peak,
decline.[24]