| The Physics of Bubbles | |
 | |
| 3-5 per cent gains over a short period is equivalent to a much larger annual return |
by Devangshu Datta(@iinvestor.com)
As kids growing up in pre-TV Calcutta, we often invented our own little games. One of our pastimes was attaching a balloon to the exhaust pipe of a parked two-wheeler. As the bike started, the balloon inflated; within seconds, it exploded. We considered it a bonus if the biker fell off in surprise.
...................
Some analogies from this little game apply to stockmarket bubbles. A stock-bubble occurs when too much money is pumped into too few stocks. In a low-growth, low-quality economy, the bubble explodes quickly. In a high-growth economy, the bubble expands more. If there are really high-quality stocks around, the bubble may slowly deflate instead of bursting.
Every bull market turns into a bubble at some point; stock prices balloon to an extent which cannot be justified even by the most optimistic projections. And, sometime or the other, the bull-run bubble bursts or deflates
....................
Courtesy : http://iinvestor.com
Yahoo! Photos – NEW, now offering a quality print service from just 8p a photo.
No comments:
Post a Comment