A simple yet fundamentally important point is highlighted
by JAMES MACKINTOSH:
“High prices
eventually lead to supply, which leads to lower prices. London has among the
highest prices for residential real estate in the world, but the lesson applies
to any company, in any sector, when it gets its moment in the market spotlight.
The pattern is
evident in markets time after time, yet investors repeatedly make the same
mistake, arguing that this time is different, because this time demand is
running ahead of the surge in supply. Mining and oil companies are suffering
the effects of the biggest of these capital cycles, with holes in the ground
still being dug years after commodity prices plunged. But even in these most
cyclical of sectors, investors still got carried away with their projections of
demand in the good times, ignoring the solid evidence of increasing supply.”