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Financial Crisis History

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Guest Charlie The Tramp
Does Everyone Lose in a Crash?

It’s quite common to hear someone grumbling about how much money they lost on a stock, but did you ever stop to think where that money went?

In contrary to popular opinion, that money is far from lost. In fact, that money was won by a professional trader who profited from the stock’s decline! Sophisticated traders such as these are called the “smart money” because they profit regardless if the market is crashing or booming. The smart money wins most of the money lost by the “dumb money”, or the “average joe” amateur investor. By learning how to trade like the smart money, you can profit tremendously in any type of market. Let’s learn the differences between the two types of traders:

So the Pros made a fortune over Black Monday.

Well one man`s gain is another man`s loss.

Average Joe should have kept his money in the bank at least he is guaranteed some return without risk. <_<

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Guest Charlie The Tramp

Is it not more simple than that.

Fred buys share for $10 share climbs to $100

Joe buys Fred`s share for $100

Fred makes $90 profit

Market crashes Joe panics as share falls to $10 and sells losing $90

Fred buys back at $10 waiting for the next mug. :D

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The point is that rising assets prices encourage people to obtain credit to buy more of the said assets. It's the credit that causes a boom and makes inevitable the bust when the credit lmit is reached and the debt has to be repaid. Also, whilst money is only created (long-term) by productivity growth, investing vast sums in companies that are worthless (as in the dot com boom) or houses that are overpriced means less money is ploughed into investments that can produce proper long term growth. The economy grows in the short term by the increased consumption, but if companies can not obtain enough credit to invest in new products (because it is all being spent on pointless shares and houses) then long term sustainability is affected.

Edited by Matt

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Not actually true.  If a gazillion shares in Google are sold at $1 each, and then trade at $300 dollars because one person trades one share at that price, everyone has made $299 per share out of thin air.

When  the market crashes, the next trade can be only one person for only one share at $20.  By standing aside and letting that trade occur, the gazillion people that didn't sell have accepted a paper loss of $280 each.  And no one has  made that money.

Indeed, that's why the concept of market capitalisation is notional, if everyone of GOOG's shareholders tried to realise $286 per share suddenly the company would be worth more like $2.8 per share ;) As demonstrated last week, Google issued more shares to raise $4b, this diluted existing shareholder value hence people baulked and it dropped from $305 and hasn't got back up there since.

Nothing is any different with houses of course, apart from them being iliquid and a little more sticky on the way down, bricks and mortar don't mean anything, lots of companies have bricks and mortar and their shares can trade below their net asset value.

Homes have no intrinsic worth above what a buyer is prepared to pay at a particular moment in time.

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I just can't see any value in the stock market. To me it seems that shares are way over valued when you look at their dividends. Everyone seems to be keen on the share price increasing :unsure:

Is that not why we are on HPC? Because houses (an Asset) are over priced? Are we not shaking our heads in disbelief at the low Yields the BTL brigade are bringing in?

Please correct me if I am wrong

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Please correct me if I am wrong

You're right. The ocean of easy money created by irresponsible central banks has inflated the mother of all global bubbles. When (not if) it pops the global financial stability will be severely affected.

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You're right.  The ocean of easy money created by irresponsible central banks has inflated the mother of all global bubbles.  When (not if) it pops the global financial stability will be severely affected.

The effect of easy money supply on the world is not discussed enough. it is the source of many of the world's problems. And it doesn't even exist! It has been created with the stroke of a banker's pen!

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So the Pros made a fortune over Black Monday.

Well one man`s gain is another man`s loss.

Average Joe should have kept his money in the bank at least he is guaranteed some return without risk.

First on average joe should have kept money in the bank:. Were it not for fractional reserve banking this would be better for average Joe. But the sheer fact that banks lend out our own colective money means that our saved money is competing with our earnings for the purchases of good and services. And is devaluing our wealth and income capacity. Worse when money from all aover the world is being lend internationally to better economies disproportionatley.

But we trust banks cos Direct debits save us money and they provide convinient services, but money has a propensity to destroy wealth. (the two are not the same).

And then re panic selling: I'll quote J.Mamis

From post no 19 on th following thread

http://www.housepricecrash.co.uk/forum/ind...topic=13961&hl=

RESPONSIBLE is a word that matters so much in our daily dealing that we'd like to apply it to the stock market so we'll feel better about being invested in some thing "responsible" rather than racetrack-disreputable....

By midday on October the 20 [EDIT he is talking about black monday or wednesday], in the face of apparently huge risk the "go for it" specialists and other professionals were on the buy side while the many brokers, in the interest of being responsible for thier clients' money, were selling them outat the low. It infuriates and frustrates the nice investor when the seemingly dangerous risk-taking turns out to be the "brilliant," and safer, course of action

"How can anyone understand a market like that?" becomes the cry. The speculative wins over what is deemed conservative. Note how misleading those words are. SPECULATIVE takes on the aura of Evel Knievel...The word becomes synonymous with gambling, when what you and I are really trying to define is nothing more, or less, than a potentially positive risk-taking.....

Stock market Man doesn't like or approve of such risk-taking. We have our doubts and suspicions because it isn't clear, isn't nice, isn't our language. THE RISK OF MAKING THE "WRONG" DECISION BECOMES MORE IMPORTANT THAN THE EVENT RISK.

We want to apply moral words to what happens: right versus wrong; up is good, down is bad; positive and negative as market timing signals; success and failure equating profit and loss; even bull and bear personality traits....

HOW ARE WE GOING TO UNDERSTAND THE RISK OF BUYING IF REPORTERS CALL THE MARKET "GOOD"?"

sp1

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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