In his September 27 blog post, Collaborative Fund's Morgan Howsel does a nice job describing the differences between bubbles and cycles, here's a snippet:
If you find an asset whose price looks expensive and is probably going to fall, you likely haven’t found a bubble. You’ve found capitalism. Excesses will correct, recover, and life will go on.
But that raises a question: If we know cycles are regular, why not try to get ahead of them by buying and selling before they turn?
Because regular does not mean predictable.
We can say, in hindsight, that you should have sold stocks in 1999 and repurchased them in 2002. We can say, in hindsight, that you should have gotten out of the market in 1929 and bought back in in 1932. But not one person in a million actually achieved this, which should make us question how feasible it is do it in the future. Look at the returns of macro hedge funds, which try to ride the ups and downs of cycles and bubbles. You would not wish them upon your worst enemy.
The investing world becomes a lot less scary when you view most booms and busts as cycles rather than bubbles. Will things ebb and flow, sometimes by a lot? Well, yeah. That’s what you signed up for as an investor. But is everything with a valuation above its historic average a civilization-shattering bubble? Not by a long shot.