In Irrational Exuberance, published in 2000, Yale economics professor Robert Shiller defines a speculative bubble as “a situation in which temporarily high prices are sustained largely by investors’ enthusiasm rather than by consistent estimation of real value”. Such phenomena have become all too familiar in the past decade as markets have lurched from bubble to bubble, in internet stocks, housing and – most likely today – commodities.

Because human nature plays such a central role in speculative excesses, it is inevitable that such manias will recur. This inevitability makes it important for investors to understand why bubbles happen – if for no other reason than to limit the damage inflicted on their portfolios by the next one.