Value investors have developed some key criteria in judging if a stock is worth buying and one of these is what is called competitive advantage. This simply means the advantage a company has over its competitors with regard to pricing/product that keeps it perpetually ahead of others in terms of economic profit.

Here at Smart Investor we rate the presence of a long term competitive advantage as one of the most important elements in deciding whether a company (and by association the company's shares) is good and whether we would want to invest in it.

A market bubble occurs when speculators have taken over a market. It normally starts with a genuine bull market that then spirals out of control, as greed becomes the primary sentiment of the market. More people hear that easy money is being made in the market and pile in, caution is thrown to the wind and prices run out of control.

Surprisingly, despite millions of investors being caught out and losing money in a bubble time and again, market bubbles are quite easy to recognise.