Well, a bubble is the result of people being fooled on an industry or economy-wide scale, so I think the fact that we still have them shows that plenty are fooled. I agree that many savvy players will participate with full knowledge of what's happening, but this only works for them because of all the suckers waiting in line.
It's not really a result of anyone being fooled. It's rational economic behavior to get in on a bubble which is why bubbles get bigger. The people that get screwed are the ones that dont get out at the right time.
Unless you are a very sophisticated trader (and likely even then), knowingly betting that a bubble will continue to expand is just gambling. You might get lucky and exit at the right time, but it's seriously -EV. That said, I don't really think the majority of small time investors think in those terms or are at all aware of how the monetary boom-bust cycle operates, which is why they get fooled into thinking they are better off when their nominal wealth increases as their real wealth deterioriates.
In hindsight, maybe. You only know it's a bubble when it bursts and the markets come back to earth. Outside of that it's rational to invest in something that's growing.
I still disagree. During bubbles, it is often apparent through straightforward financial analysis that companies are overpriced. Investing in a company whose price isn't supported by underlying assets and earnings because it's 'hot' is a speculative gamble on the extremely difficult to predict group psychological whims of the marketplace, not a rationally conceived value investment.
