A period of high returns was defined as a portfolio of shares in an industry returning 100% or more on a relative or absolute basis over two years. To eliminate the impact of a bounce off substantial lows the study authors also stipulated the industry\u2019s absolute returns were 50% or more over the previous five years.<\/p>\n
Between 1926 and 2014 there were 40 industries that meet their criteria in the US. Outside the US the researchers identified 107 scenarios between 1985 and 2014. Fama turned out to be right \u2013 in only half of the \u2018bubbles\u2019 a crash occurred. \u00a0The researchers defined a crash as a 40% fall at some point in the two years following the period of high returns.<\/p>\n
![](\"https:\/\/www.newsbeep.com\/nz\/wp-content\/uploads\/2026\/06\/Fama.png\")
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A normalised return index on the y-axis shows how an investment performs compared to a common starting point. As you can see the run-up average between the crash and non-crash outcomes looks similar to the overall market return index.<\/p>\n
Talking about bubbles is one thing. Dramatically changing your portfolio is another. Incorrectly identify a bubble that doesn\u2019t happen and it could make a dramatic difference in your investment outcomes.<\/p>\n
New rules for a new era<\/p>\n
Index providers have rules stipulating when new companies can join an index. For instance, the S&P 500 rules require 12 months of seasoning before a new company is included. The purpose of this seasoning is to avoid the volatility that often accompanies an IPO and to avoid hype-driven inclusion in the index.<\/p>\n
The S&P 500 index also requires companies to be profitable on a GAAP (Generally Accepted Accounting Principles) basis. This rule is designed to only include mature and high-quality companies.<\/p>\n
In what is shaping up to be a massive year for IPOs the S&P 500 has a problem. The first giant IPO, SpaceX, doesn\u2019t meet the index criteria. Following a round of consultation which just ended Dow Jones S&P may let this new and wildly unprofitable company into the index.<\/p>\n
If the S&P 500 caves they will follow the NASDAQ and FTSE indexes who have already changed their rules. And SpaceX is only the tip of the iceberg. The index providers are anticipating IPOs from Anthropic and OpenAI.<\/p>\n
I know feigning outrage is in vogue. But I\u2019m not a purist who thinks rules should never change. I don\u2019t really care what the index providers do although I do own some index products tracking the S&P 500.<\/p>\n
But I do think it is telling when the rules are changed in a hype-driven market to include companies that embody that hype.<\/p>\n
Passive investors aren\u2019t supposed to care about individual companies. Which is why I don\u2019t care what happens with SpaceX in the portion of my portfolio that tracks an index.<\/p>\n
But maybe this will make some \u2018passive\u2019 investors happy. They can say they own SpaceX and talk about the synergies between rockets, mobile broadband, Twitter and AI.<\/p>\n
Or maybe this strange conglomeration of businesses that people are desperate to own is a product of a time which will look foolish in retrospect.<\/p>\n
Mark LaMonica<\/p>\n
Also in this week’s edition…<\/p>\n
The government\u2019s tax proposal is supposed to help younger generations. Lauchlan Mackinnon explores the validity of these claims<\/a>.<\/p>\n Shani Jayamanne sits down with Abbey John to learn the different ways you can minimise tax with a will<\/a>. \u00a0<\/p>\n Many investors are turning to AI to assist with investment decisions. Larry Swedroe doesn\u2019t think AI can help you pick winning funds\u2026 but he does think AI can help avoid the losers<\/a>.<\/p>\n Ashely Owen is back and turning his attention to inflation. According to Ashley Boomers got lucky and the next generations won\u2019t be so fortunate.<\/a><\/p>\n The cost of financial advice continues to increase but expanded tax deductibility will increase affordability<\/a> according to Sarah Abood.<\/p>\n Dr Joanne Earl returns with an update on her retirement<\/a>.<\/p>\n Richard Holden argues the government has created the first ever productivity tax. He goes through the implications for young Australians<\/a>. \u00a0<\/p>\n This week’s white paper is Capital Group’s analysis of company dividends worldwide<\/a>, as part of its broader Global Equity Study.<\/p>\n Curated by Mark LaMonica, Simonelle Mody and Leisa Bell<\/p>\n Latest updates<\/p>\n PDF version of Firstlinks Newsletter<\/a><\/p>\n Monthly Investment Podcast<\/a> by UniSuper<\/p>\n Listed Investment Company (LIC) Indicative NTA Report<\/a> from Bell Potter<\/p>\n ASX Listed Bond and Hybrid rate sheet<\/a> from NAB\/nabtrade<\/p>\n