July 17, 2015

Stock Market Bubble

Photo by unsplash from plixs.com, Public Domain License CC0 1.0
Photo by unsplash from plixs.com, Public Domain License CC0 1.0

Stock market for many years has revealed means to increase wealth. As long as investors perceived that companies will grow in the succeeding years, stock price will increase. But an abrupt spike in price sometimes triggers something - a bubble. Imagine a balloon with too much air; it looks safe with little air but as it expands with more air – one touch might make it explode. Imagine that the air is the stock price and the balloon is the market; increasing the price too much at short period of time without strengthening the market outlook might blow the balloon.

If we put another balloon inside a balloon (two layered balloon) before putting more air pressure to it, the balloon would not explode. In stock market the same concept applies, strengthening the market by providing right information to the public would be a big help. In passing, an abrupt spike in price is a hint that the stock is bubbling. There is a chance that you will gain from the bubble, but there is a high chance of losing right away your money.

In this era where economic outlook is uncertain, stocks with rapidly increasing price should be looked cautiously.

1 comment:

  1. This is somehow related to stock market bubble of China. Be a smart investor people! Don't speculate!


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