Talk of an A.I. bubble is becoming hard to ignore. The rapid rise of technology shares tied to artificial intelligence has echoes of past manias – soaring valuations, narrow market leadership, and a “this time is different” narrative driving investor enthusiasm. Capital spending on chips, data centers, and cloud infrastructure is surging, and many market commentators are warning that prices may be outpacing profits. While it’s impossible to know in real time whether today’s optimism will prove justified or excessive, the combination of rich valuations and fervent storytelling checks many of the historical boxes of a bubble. Which naturally leads to the question: how should an investor navigate a potential bubble?

Just as important as knowing what to do is knowing what not to do. A few reminders can help keep things grounded.

Market Timing is Treacherous

Trying to sidestep any stock market bubble by moving in and out sounds tempting but rarely ends well. Warnings of bubbles have a long track record of arriving early. Alan Greenspan’s famous “irrational exuberance” speech came more than three years before the dot-com peak; skeptics of the housing boom were vocal years before 2008. Investors who acted too soon often missed substantial gains as markets continued higher. Even harder than getting out at the right time is knowing when to get back in. Many investors who sold in fear of a bubble missed the recovery that followed, turning a short-term risk management move into a long-term performance drag.

Diversification is Medicine, Not a Cure

When certain sectors dominate returns – as A.I. has recently – there’s a tendency to chase what’s working. Yet history shows that diversified portfolios fare better through bubbles and their aftermath. During the early-2000s tech crash, international stocks, small-cap value, and high-quality bonds held up far better than the Nasdaq. In 2008, Treasury bonds and defensive equities provided ballast amid the housing collapse. Diversification won’t eliminate drawdowns, but spreading exposure across regions, industries, and asset classes reduces the risk that one overheated area dictates overall results.

Maintain Good Investment Behavior

Investors can’t control how or when a bubble deflates, but they can control their own actions. A market bubble is fertile ground for behavioral pitfalls including: herd mentality (“everyone’s getting rich on A.I., should I jump in?”), overconfidence (“this must be a bubble, time to get out now”), and confirmation bias (e.g. selectively reading only agreeable viewpoints, or using rising/falling prices as validation). Successful investors recognize these biases and resist acting on them. Good behavior means sticking to a long-term plan, rebalancing systematically, and avoiding emotional reactions to headlines or short-term market moves.

Moments of euphoria show up in every investing era. It’s easy to get pulled into the excitement, or the anxiety, of a potential bubble. But the enduring lessons haven’t changed. Long-term investors don’t survive bubbles by predicting exactly when exuberance will peak. They make it through by staying diversified, disciplined, and focused on process instead of short-term predictions. Markets will always swing between optimism and pessimism, but patience and prudence remain reliable tools for making it through to the other side.