Price Bubbles Always Burst: Garmin Bubble - June 2005 to October 2007

Investing has few absolute truisms, but one that holds one-hundred percent is that price bubbles always burst. Whether its corn, cattle, gold, platinum, land, tulips, currencies, stocks, bonds or whatever, an extreme price never lasts. During the frenzied buying associated with a price bubble's upside, some investors "suspend their disbelief" to unwisely conclude that prices will rise forever, and their poor judgment results in rapid and severe losses.

Garmin (GRMN), the maker of global positioning system (GPS) devices, is a recent example of a price bubble gone bad. From June 27, 2005 to GRMN increased from $20 to its closing high of $121.81 on October 24, 2007, a 509.05 percent increase.

Since the stock peaked, it has fallen to $48.47 as of April 8, 2008, a 60 percent decline in just five months. In the future, the stock could rebound, but it is unlikely to return to its bubble highs.

Don't get caught up in bubble mania; when you hear that "It's different this time", turn off CNBC and put away your checkbook.

Related Articles:

Anatomy of a Bubble Top
Price Bubbles Always Burst: Downsides Are Rapid and Unrelenting
Price Bubbles Always Burst: Downside Losses Cancel Upside Gains
Price Patterns - Bump and Run Reversal Top Defines Price Bubble
Price Patterns - A Bubble Top Is an Extreme Pattern

Updated April 17, 2008.