Last week, I wrote about Alan Greenspan’s now-famous phrase, “irrational exuberance,” and made the case that timing the market is, at best, a fool’s errand.
Greenspan uttered those words so early in the tech bubble that investors who sold after his warning and sat in cash ended up with roughly the same post-crash results as those who stayed invested through the rise and fall.
This week, I found myself thinking about comments made almost a decade later by Chuck Prince, then the CEO of Citigroup. In the summer of 2007, just before the global financial crisis, Prince gave an interview to the Financial Times that produced one of the most memorable lines in modern finance.
Asked whether the bank might slow its lending amid signs of excess in the credit markets, he replied, “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
It was meant to be offhand — a metaphor for staying competitive while liquidity was plentiful — but it quickly became a symbol of the reckless momentum that defined that era.
Within months, the music stopped. The leveraged-loan market froze, mortgage securities imploded, and Citigroup found itself among the hardest hit. The quote has since entered the financial lexicon as shorthand for late-cycle exuberance and the irresistible pull of herd behavior.
The line captures something deeply human about markets. When everyone is making money, it’s hard to stand aside. Investors know risks are rising, but they worry more about missing out than losing later.
This pattern isn’t limited to credit bubbles. We see versions of it in nearly every investment fad or late-stage rally. Whether it was dot-com stocks in the late 1990s, housing in the mid-2000s, cryptocurrencies in the 2010s, or artificial-intelligence and private-market themes more recently, the rhythm is familiar.
Strong performance attracts capital, rising capital pushes prices higher, and higher prices validate the story — until expectations outrun fundamentals and confidence falters.
Last week, I argued that being early (like Greenspan) can be as wrong as being late. This week, I’m remembering Chuck Prince to say that you shouldn’t chase returns and bump up your risk profile, either.
We determine asset allocations with clients in the context of their financial plans — what mix of stocks and bonds they need to meet long-term goals.
Then we assess their risk tolerance not through a questionnaire, but by showing what their mix would have lost during bad times, usually 2008 for stock investors and 2022 for bond investors. It’s a gut check: if a client winces, the allocation probably won’t work when the music stops.
After we memorialize the allocation in an Investment Policy Statement (IPS), comes the hard part — living with it through all the twists and turns that life and the markets bring.
Greenspan reminds us not to bail too early, and Prince reminds us not to get too greedy either. The discipline lies in staying invested, but not swept away, no matter how loud the music gets.
