While some investors may think of Hyman Minksy as a curmudgeon for criticizing bull markets, others see him as the wise economic Buddha the world’s been waiting for.
A Minksy Moment is when a market crashes after a long bull period. Long bull periods imply that markets have been going up, up, up, champagne flowing, investors dancing the nights away in a drunken stupor...only to be surprised by the hangover reality the next morning when the market crashes. What goes up must come down.
Minksy was not one to get swept away by bull markets, but instead was the one-drink, almost-sober person in the corner of the party hall. He believed that bull markets that went on too long meant that assets were becoming overpriced, and speculation was highly inflated. In that case, we can expect markets to come crashing down, over-correcting the too-high prices we assigned to them in a happy, bull-market stupor.
Minksy was a modest man, too. He didn’t coin the term himself. If you were wondering, many economists would classify the 2008 financial crisis as a Minksy Moment, as subprime mortgages were overpriced, hidden in highly-rated mortgage bundles.
Take a hint from Minksy, the Man.