In general terms, what's the proper response for an investor who owns an investment that is behaving fundamentally irrationally?
I'm thinking of things that are widely regarded as bubbles (Bitcoins, Tesla, and so on), but that's mostly because I can't come up with any examples off the top of my head of any investment that's widely regarded as fundamentally undervalued. Perhaps a financial panic would be the flip side of a bubble.
It seems like the simple answer (sell the bubble, invest more in the irrationally undervalued investment) would be the right one, but then I think of the "Bitcoin bubble" years back when they were worth almost $100 each, or the Tesla bubble a few years back back when it also worth a fraction of its present value... and undoubtedly, there are examples of irrationally undervalued investments that ended up going to 0, which makes me wonder if maybe the better answer is riding along with the irrationality. The market can stay irrational longer than you can stay solvent, after all.
I can see three basic strategies - rationality (sell the bubble, buy the panic), avoidance (staying away altogether) and embracing the irrationality (buying into the bubble/selling the panic with everyone else), but I think I must be missing something, based on what the majority of investors do in these environments.
So, what's the proper strategy to market irrationality? (Or is there a proper strategy, even?)