The Stock Market Blob

Hello readers

I hope you are all fine and healthy.

Bulls make money, bears make money, pigs get slaughtered.

-An old investment industry saying warns against being excessively greedy.

So, it is weekend time to blog! Of late, my genres have been more on values, friendship, behavioural psychology, and some good vibes about entrepreneurship.

Today it is about one of my favorite topics, which I am pretty sure there are many people around who get excited and curious to understand about it. So, the stock market it is!

There is a lot of talks going on since last week about this jargon since past week.

It is called the “stock market bubble” lets break it up we know the stock market, what is a? A small globule typically hollow and light: such as. a: a small body of gas within a liquid. b: a thin film of liquid inflated with air or gas.

Understanding Stock Market Bubble

The Reserve Bank of India (RBI) recently warned about a possible stock market bubble in its annual report for FY21. The central bank’s comment comes on the back of domestic stock markets touching record highs even as the country’s economy continues to face disruption due to the second wave of the Covid-19 pandemic.

In the context of financial or economic markets, a bubble generally refers to a situation where the price of a stock, financial asset, an asset class, or an entire sector exceeds the fundamental value by a significant margin.

Stock market bubbles are usually hard to predict, especially for those who do not track the market in-depth daily.

There are usually five stages to a financial or asset bubble, and understanding each stage is essential to avoid wealth erosion. The five steps are displacement, boom, euphoria, profit-taking, and panic.

Simply put, the bubble is created based on speculative optimism or demand rather than the financial asset’s real or fundamental worth. 

When the bubble bursts, it leads to massive selloffs, and prices decline rapidly.

The housing bubble in 2008 that led to a severe global recession is one of the most prominent examples, though there have been more minor instances in the past.

The bubble can affect the overall stock market, exchange-traded funds (ETFs) or shares in a particular sector.

 I read an article in independent.co.uk about the return of Michael Burry to Twitter, nicknamed the  “The big, short investor”

 Here’s what he had to say: The “Big Short” investor, Michael Burry, returned to Twitter after deleting all of his posts to warn cryptocurrency and meme stock investors that the “mother of all crashes” could be on its ways, costing them tens of millions or trillions of dollars.

 By now, we know the ingredients that make or builds a stock market bubble; let us try to list them, speculation, over inflation of stock prices, the earning capacity of the stock exceeding its fundamental values.

Rest assured; is not the first time this phenomenon has occurred ; here are some famous stock market bubbles which the markets have witnessed.

The Mississippi bubble (1719-1720)

The Mississippi Bubble -- which derives its name from the French Mississippi Company -- grew out of France’s dire economic situation in the early 18th century. By Louis XIV’s death in 1715, the treasury was in shambles, with the value of metallic currency fluctuating wildly.

 The south sea bubble (1720)

During the same period that French speculators were driving up the price of shares in the Mississippi Company, English speculators were purchasing stock in the South Sea Company. Formed in 1711 by Robert Harley, the South Sea Company was created to convert £10 million of government war debt (incurred during the War of Spanish Succession) into its own shares. In exchange, the company would receive annual interest payments from the government and a monopoly on trade with the South Seas and South America.

The Japanese “bubble economy” (1984-1989)

From the 1960s to the 1980s, Japan had one of the highest economic growth rates in the world. In the 1970s, the government began to deregulate financial markets, which allowed banks to actively seek out new customers. During the mid-1980s, Japan took a loose approach to monetary policy, which caused the money supply to increase and interest rates to fall. Combining these two actions was essential to creating a speculative bubble: with low interest rates and easier access to credit, new actors entered the financial markets.

Recently the 2008 mortgage crash!

Are bubble bursts suitable for the market and its participants?

 

• Investors can benefit from bubbles by being contrarian.

A bubble will typically result in great scrutiny on one or two market areas, leaving others ripe for the picking. Despite the broad brush that companies that operate in the sector get painted with, there are some excellent companies that long-term investors can target.

The two most significant traits to succeed in investing have the mindset that allows an investor to be comfortable going against the tide and waiting for their thesis to play out.

• The best way for investors to differentiate between a new business and a trend is to do their homework.

They should consider whether the business they are analyzing has earnings. A company may not necessarily be profitable if it is reinvesting heavily into its operations to grow its business. Still, the company needs to demonstrate an ability to generate profits at some point in the future.

• Investors need to evaluate how much they are paying for a business.

Paying 30, 40, or 50-times earnings is generally not a recipe for success, as a great company can be a bad investment if bought at too high a price. Sometimes, finding a great business means having to wait several years before the market offers up the opportunity to buy it at an attractive price, but that is part and parcel of being a disciplined investor.

• Investors need to monitor their investments.

This is to ensure that the reason they bought a company in the first place is progressing as expected. Companies can fail to execute their strategies for various reasons, poor management, changing industry dynamics or sheer bad luck.

Some key takeaways which understood from doing my math and research are.

The bubble is an inevitable situation, just like the highs and lows of the market cannot be controlled.

It must be noted that day trading should keep a tab on the volatility and avoid trading on eccentric days, especially in derivatives, to avoid losing on heavy market premiums!

Finally, the positive part is that if the bubble fragments the market, and we see a double negative, it is the best time for long term investments.

Thanks a lot for your time, enjoy the rest of your evening.

Helios.

References:

https://www.indiatoday.in/business/story/rbi-warns-of-stock-market-bubble-should-investors-be-worried-1809096-2021-05-31

https://www.pbs.org/wgbh/pages/frontline/shows/dotcon/historical/bubbles.html

 https://www.morningstar.in/posts/50879/markets.aspx

Pearl of Friendship

Hello readers

 Hope everyone is doing well.

A friend is someone who understands your past, believes in your future, and accepts you just the way you are.

-Unknown

 There are moments in your life which you would always recollect, and you rejoice in them

It was triumphant to you.

 Maybe that was the day you got your driving license or graduated, or maybe your first job.

 There is this word called “companion” or companionship which is dear to all of us.

 Why do we feel so? For the simple reason that we are called humans, the human gene in us longs for sociability and cordial relationships.

 So, there is a string in the mind which needs support to strum, sometimes because it is worn out due to the emotional wear and tear in our day-to-day.

 There are experts in tightening that string, and the tool they use is simple; they give the buff of happiness and the empathy required at that time.

 They give you a buddy boost, which was required. We call them friends.

 The Webster dictionary defines a friend as: person who has a strong liking for and trust in another person.

 Simple and beautiful as it sounds, a person who genuinely likes your quality, presence and appreciates.They shares your happiness and pain,  see happiness in your happiness.

 The beauty of friendship is, it is just that person being there for you and you being there for him.

 There is this word called expectation which sometimes blocks friendships. But I see it is a litmus which proves the vigor of that comity.

 People say, "meet my friend"!  but I feel the word "friend" is taken lightly these days and like so many sayings go you should seriously choose whom you want to consider as one, yes.  I am serious.

 I have learned one thing clearly in life: there are two kinds of people whom you meet in life; the first kind are just passers-by; definitely, you enjoy their company, then we move on, you might learn somethings from them or teach them and there it ends.

 Then they are this second kind, whom you want to stick upon, and they too wish to stay with you and accept you as you are; these are the people who will stand by you come what may.

 In fact, one of my friends asked me when I wrote my last blog, why don’t you write something even my daughter could connect!?

 I thank him for asking me that, we all need good friends in life, and the bonds should start building when we are young, and those bonds last forever.

 Of course, there are no timelines to meet good people and become pals.

 A very learned man once said, “when you have already accepted a person as your close friend, stop having your ego fights with them for things like starting conversations, who should be the ice -breaker! if you do not hear anything from their end just dial the phone or go meet them!”.

 Further, he says, once you are sure they will be part of your life till your end, support them, respect them, and enjoy the purity of the friendship.

 That is the pearl of your friendship.

 Ending my blog with a humble thank you to all my friends who stood by me and for me and made me smile when I tried hard to cry.

 This one is dedicated to all my dear friends!

 Thanks for your time, good evening.

 Helios.

My Brain and me.

Hello readers 

 

Hope you all are fine and safe.

 

A hero is somebody who is selfless, who is generous in spirit, who just tries to give back as much as possible and help people. A hero to me is someone who saves people and who really deeply cares.

-Debi Mazar

 

What are you guys up to these days? 

 

Lousing on office chairs for 8 odd hours, then some dinner, TV and sleep and a little bit of gym in the morning and the cycle continues.

 

Extended  lockdowns have had effects on our brain and our mental health for sure.

 

But still, it is incredible you can travel any nook and corner of this world in your brain, a great imagination tool!

 

That is the teleporting power of your human-computer.

 

I have a habit of writing a journal since I was in class seven.

 

Yup, heavy, I guess!

 

But it just started as a hobby and finally became a part of me.

 

I would not say it is a habit because my journal is like a person for me; when I write on those pages, I talk to him.

 

There are journal communities on the internet; it's pretty exciting for people like me.

 

That book does not know this word called 'false' because the pact is that you never lie to your journal.

 

“My Brain and me” is a behavioral study about the person(writers) who keeps a record of their life in a book.

 

Do you know where the culture of journal writing originated when sailors went on extensive voyages? They recorded almost everything they saw and experienced.

 

There is this word called 'self-policing '. You control what you do and what is good for you, basically maintaining an emotional balance and being composed during strange situations like the one we are in now.

 

So, the journal can become a friend, you can open to your truest form, and you become a judge of your life and work on improving your shortcomings.

 

Courtesy google images

Think about few scenarios about "you and your brain" and record it; that is how you start your writing journey.

 

A sincere thanks to all my readers who asked me if I was fine when they did not read see my blogs weekly. Just was a little held up.

 

Happy writing.

Let us handhold people who need help that is most needed.

 

Stay safe and happy, guys :)

Have a great day ahead.

 

Helios.