Is there a stock market bubble? Short answers to FAQ| Invest!Elle

Is there

a stock market bubble ?Short answers

to FAQ

Curated For Ladies Only!

My dear Friends,

There is a lot of talk about a stock market bubble, the media sends us all into a frenzy, and everybody seems to be terribly worried.

Rest assured, I do worry as well. Bubbles tend to burst, which could leave many with severely reduced assets.

After a long period of continuous all-time highs in stock markets and real-estate prices, we have now entered a period of falling stock markets. Looking at Cryptos, they have definitely fallen out of favour.

Success-driven investors have entered unchartered waters. There is a kind of awakening mood or, more accurately, a severe hangover.

Why? Because, since 2008, stock prices had only one direction – up. However, the page started turning in Q4 2021, markets became very volatile, and inflation rose.

At the beginning of 2022, global stock markets slumped further, and doom and gloom are now everywhere.

Consequently, a global community of discerning and less discerning investors worry about a crash, a recession or stagflation; nobody is sure yet what will happen. As usual, the media assists generously and makes things worse.

Here are some short answers to ” Bubble FAQs”. So, dear savvy ladies, judge for yourself if there is a bubble or not.

What is a bubble?

Prices in an asset class are completely disconnected from fundamentals for 6-12 months; markets are tiered there is the tier with overpriced securities and another tier of out of favour securities

What are the causes?

High liquidity, low-interest rates, hyped asset classes, investors’ FOMO ( Fear of missing out), the media and a relaxed monetary policy

Are there warning signs?

A story captures the market; prices rise at an unusually rapid pace; prices rise regardless of the news; other asset prices follow; too much money flows into one specific asset class; inflation rises; nervousness & volatility increases

Is it the investor’s fault?

Yes, investors are too bullish for a long period; speculative behaviour goes overboard; the number of retail investors increases sharply; purchases are done with high leverage

Does have monetary policy an impact?

Yes, a sharp rise in interest rates to curb inflation without forwarding guidance will severely reduce liquidity. Investors with high leverage need to sell fast and markets will go down

Once the bubble has burst will the value come back?

No, because the euphoria is gone. There will be less speculation and fewer investors because interest rates are high and liquidity is tightened. Asset prices go back to matching the fundamentals

Be fearfulwhen others are greedy and greedy when others are fearful
Warren Buffet, Berkshire Hathaway

Can I protect my portfolio?

Yes, you can. Never follow trends, have a plan/goal and stick to it, invest diversified, stay vigilant, stay informed, and follow geopolitics.

Should I panic and sell?

No, stay calm, do nothing. Assuming you invested your own money and are not leveraged. Markets go up and down, selling in a downward cycle means selling at a loss

Should I make alterations to my portfolio?

Not necessarily, investments are long-term and markets will bounce back, after a while. Stay diversified, keep your risk spread, try to have cash, and buy in the dip

What was the first bubble?

Tulipmania, in the 17th century. The price of tulip bulbs was hyped, only to totally collapse in 1637. Tulips were the first commodity to be sold in a futures market.

So, I do hope you will not allow the fearmongers to take hold of you. Rather, stay calm and level-headed right now and refrain from panicking.

My suggestion, take a step back and make your own assumptions. Only then will you have confidence to weather the storm by making informed portfolio choices.

Still, there is one major takeaway, never panic or let our decision-making be guided by fear.

Is there

a stock market bubble ?Short answers

to FAQ

Curated For Ladies Only!

My dear Friends,