How financial Bubbles can be avoided by Investors

To understand and financial bubble  easily..we take simple comparison
Here is official definition:

An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is ” An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is “trade in high volumes at prices that are considerably at variance with intrinsic values“. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future. in high volumes at prices that are considerably at variance with intrinsic values“. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future.

Take our market as one big farmer ,think of money as seed ,and farm ground as your stocks ,and the market is the place selling the ground sold and public are the Waterer’s

Illustration 1:

And he spake many things unto them in parables, saying, Behold, a sower went forth to sow;

And when he sowed, some seeds fell by the way side, and the fowls came and devoured them up:

Some fell upon stony places, where they had not much earth: and forthwith they sprung up, because they had no deepness of earth:

And when the sun was up, they were scorched; and because they had no root, they withered away.

And some fell among thorns; and the thorns sprung up, and choked them:

But other fell into good ground, and brought forth fruit, some an hundredfold, some sixtyfold, some thirtyfold.

Let’s consider the first bubble  Dot-com bubble

This bubble was due to following reasons

1.Internet had grown to a stage of Marketability (Mosiac browser)
2.Individual speculation of well known economist
3.Widely available venture Capital (rich people investing)
4.willing to overlook logic … such as P/E ratio, that their chance of turning up profit..

Various services were all sold under one type , e-prefix and .com at the end ,
The wise thing for any farmer  is to inspect the land by setting standards for these companies ,unfortunately this was not the case …

Let them alone: they be blind leaders of the blind. And if the blind lead the blind, both shall fall into the ditch.

Market as a whole were blind guides …..including individual speculations

So what happens during bubble  according to Illustration 1

The farmer or Stock investors start sowing seeds all over on all grounds …

1st ground : hard ground..

And when he sowed, some seeds fell by the way side, and the fowls came and devoured them up:

Allot of these weak ,useless  companies fail the money left  are paid as hefty sum to the company owners as reason for loss of job ,allot of these high level executives get away millions of dollars of investors  legally and illegally

2nd ground : stony grounds …
Some fell upon stony places, where they had not much earth: and forthwith they sprung up, because they had no deepness of earth:

And when the sun was up, they were scorched; and because they had no root, they withered away.

These are some companies who were over valued,perhaps done better if it had been given correct amount of money
Source Wikipedia

These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later

3rd ground :
 But other fell into good ground, and brought forth fruit, some an hundredfold, some sixtyfold, some thirtyfold.

Source Wikipedia:
e.g., Cisco, whose stock declined by 86%. Some later recovered and surpassed their dot-com-bubble peaks, e.g., Amazon.com, whose stock went from 107 to 7 dollars per share, but a decade later exceeded 400.

Needless to say how important to inspect the land ,

CDS and CDO’s are complicated enough to make inspecting the land very tough job ,

Good future of our financial industry can only be seen by simplifying and reducing  the conditions of the Risk ,And Investors stop getting greedy and dumb …investigate the lands on which they would sow the seeds ..get the harvest they desire

More direct Communication and honest communication between investors and investments is the way to go

Because intermediate make money by selling you information…

God forbid: yea, let God be true, but every man a liar; as it is written, That you might be justified in your sayings, and might overcome when you are judged.

Yup that above puts it as clear as possible…

dollar-bill.12860305_std

 

Yup that above puts it as clear as possible…This was USA before the Federal Reserve , time during while USA prospered and developed ,sometimes OLD times are good

the saying OLD is GOLD …LOL

Psalms 40:4

O the happiness of the man Who hath made Jehovah his trust, And hath not turned unto the proud, And those turning aside to lies.

 

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