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This researcher says he has cracked the code of market bubbles — and he has bad news for investors
Economist Charles Lister Smith unveils a formula for spotting stock market bubbles and warns investors of the risks ahead.
Key points
- Smith defines a market bubble as a 40 per cent drop in equity prices.
- He redefines the euphoria phase as euphoria in the new issues market and profit taking as market congestion.
- Anthropic PBC filed last week for an IPO that could top US$2 trillion, amid bubble fears tied to the AI buildout.
Why it matters. Smith's framework could help investors judge when markets are in bubble territory as large AI listings approach.
Economic researcher Charles Lister Smith, based in New York, has published a paper offering a formula for judging when stock markets enter bubble territory. He defines a bubble as a 40 per cent drop in equity prices and says that drop appears whatever area is overinvested. His model builds on the Kindleberger-Minsky cycle of mania, panic and crash, which he has redefined around euphoria in the new issues market.
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This researcher says he has cracked the code of market bubbles — and he has bad news for investors
Charles Lister Smith says he has the formula for calculating the trajectory of a bubble — and investors don't have long left Bubble fears have been looming over the stock market for months, driven largely by the artificial intelligence buildout and concerns that the leading AI companies are now planning to go public, with frontrunner Anthropic PBC filing last week for an IPO that could top US$2 trillion. New York-based economic researcher Charles Lister Smith has been tracking historic bubble patterns and says he has the formula for calculating when markets are in bubble territory, a theory he has detailed in a recent research paper. The Financial Post spoke to him about his calculations, what’s happening in the market today and why he thinks investors should be worried. Financial Post: What got you interested in bubbles? Charles Lister Smith: My career was largely dictated by events. I graduated college in 2002 and was lucky to get a job when the Financial Crisis hit. And then I got my MBA in 2009, right when that crash hit. I know what it’s like to have your life wrecked every 10 years. My first two years at work I saw four rounds of layoff at Merrill Lynch (now part of Bank of America Corp. ). It was a terrifying thing. When I was running my hedge fund, I was looking at rates being near zero and wondering how we got into this mess in the late 2010s, and that’s when I learned.