Http://www.stock-market-crash.net/

[Shamus]

This may have been posted before, so apologies from me if it has.

It makes good reading about characteristics of bubble markets and the behaviour of people.

Well worth a read. I liked these quotes which can be applied to our housing market:

<<<In financial markets, the “majority is always wrong.” When the investing majority or the crowd is overly bearish, this is the best time to be buying stocks. When the crowd is overly exuberant, this is the time to be selling stocks. The financial markets work in this ironic way because not everyone can win in the market. If it were possible for everyone to win in the markets, this would mean that money is being created from nothing. The creation of money, in this manner, is impossible. Therefore the markets are a zero-sum game. Zero-sum means that for every winner, there is a loser. The winner takes the losers money. Zero-sum games are games where the amount of "winnable goods" is fixed.>>>

<<<After mutual funds and retail investors are fully invested, the market is overbought. This means that there is no more cash to fuel the rally. The market can only go in one direction: down. All it takes is just a hint of negative news and the market collapses under its own weight. Investors quickly realize the market is made of smoke and mirrors, as frauds or other abuses come to light.

When panic selling starts, a market will always fall quicker than it had risen. Oftentimes, as everyone heads for the exit at the same time, there isn’t anyone willing to buy the stock. This can be especially disastrous for margin users as they grow deeply indebted to their brokers. Bankruptcy is the usual result for these foolish gamblers. The majority of retail investors don’t sell even as the market is plummeting. This crowd keeps holding on to stocks in hopes that the market will recover. As the market plummets 25%, then 50% the average retail investor foolishly holds on, in complete denial that the bull market is over. Finally retail investors sell every stock they own plummeting the market even further. This mass exodus is called capitulation. >>>

Enjoy...

[Realistbear]

This may have been posted before, so apologies from me if it has.

It makes good reading about characteristics of bubble markets and the behaviour of people.

Well worth a read. I liked these quotes which can be applied to our housing market:

<<<In financial markets, the “majority is always wrong.” When the investing majority or the crowd is overly bearish, this is the best time to be buying stocks. When the crowd is overly exuberant, this is the time to be selling stocks. The financial markets work in this ironic way because not everyone can win in the market. If it were possible for everyone to win in the markets, this would mean that money is being created from nothing. The creation of money, in this manner, is impossible. Therefore the markets are a zero-sum game. Zero-sum means that for every winner, there is a loser. The winner takes the losers money. Zero-sum games are games where the amount of "winnable goods" is fixed.>>>

<<<After mutual funds and retail investors are fully invested, the market is overbought. This means that there is no more cash to fuel the rally. The market can only go in one direction: down. All it takes is just a hint of negative news and the market collapses under its own weight. Investors quickly realize the market is made of smoke and mirrors, as frauds or other abuses come to light.

When panic selling starts, a market will always fall quicker than it had risen. Oftentimes, as everyone heads for the exit at the same time, there isn’t anyone willing to buy the stock. This can be especially disastrous for margin users as they grow deeply indebted to their brokers. Bankruptcy is the usual result for these foolish gamblers. The majority of retail investors don’t sell even as the market is plummeting. This crowd keeps holding on to stocks in hopes that the market will recover. As the market plummets 25%, then 50% the average retail investor foolishly holds on, in complete denial that the bull market is over. Finally retail investors sell every stock they own plummeting the market even further. This mass exodus is called capitulation. >>>

Enjoy...

Sounds like Warren Buffett. Sounds like its time to sell gold, houses and not stay in stocks too long as the herd is moving into them a little too fast.

Edited February 9, 2006 by Realistbear

[Shamus]

Sounds like Warren Buffett. Sounds like its time to sell gold, houses and not stay in stocks too long as the herd is moving into them a little too fast.

Yep the site certainly makes for entertaining reading. I also liked the following snippet, seems to have been written very recently...!?

<<<The most deadly phrase in the market is “this time is different”! Another costly adage is “we are in a New Economy”! Both these phrases and their variations have been around since the dawn of markets. The markets never change, because human psychology never changes. When phrases like these are used, it’s because the user is in denial of reality. In these cases, it is the “dumb money” investors who want to keep riding the bull market in the same lazy fashion. The professional “smart money” realize that bull markets are always temporary. The smart money will profit in both a bull market and a stock market crash.

At the precipice of financial disaster, inflation becomes rampant. Inflation is the rising cost of living, which decreases the buying power of a dollar. The rising cost of living can be observed by much higher gasoline prices, housing prices and food prices. Ironically, it is the strong economy that causes inflation. In simple terms, the strong economy causes more demand for goods and transportation. When salaries go up, people take more vacations, which require gasoline, etc. Small inflation is a good sign, but when it really heats up, look out below!

Once high inflation sets in, the Federal Reserve tries to cool down the economy. The Fed tries to engineer a “soft landing” by raising interest rates. If inflation and stock speculation is out of hand, rates will have to climb fairly high to have an effect. Pretty soon, the stock market crashes as speculators head for the exits. The overvalued stocks quickly become a fraction of their previous values. The market will often crash for several years to come.

Stock market crashes are not difficult to forecast, as they all have the same tell-tale signs. If you are astute enough to recognize these signs, prospering from a crash is a realistic proposition.>>>

[Mr_Nice]

Sounds like Warren Buffett. Sounds like its time to sell gold, houses and not stay in stocks too long as the herd is moving into them a little too fast.

Ask around at your work how many are invested in gold. The answer will be zero.

The herd doees'nt even know that there are gold stocks so are'nt even moving towards them. yet.

Agree about houses though the world and his wife still want to be a BTL. Even bright friends consider the proposition of subsidizng tennants by topping up rent to pay a mortgage.

I don't even bother telling anyone anymore their folly

[OLDFTB]

I like this quote from the dot com thread:

'What is sadly interesting is how bubbles will continue to occur in the future. When they do occur, foolish investors will say, “This time is different!” '

[Van]

Stocks have risen a long way in the last 3 years, but I think there is STILL A LONG WAY TO GO!

Sure, there are major turning points, but stocks are still off the radar of far too many people for us to say that mass opinion has been formed.

Ask 100 people at your workplace, what they think of stocks. Many - I think most - would say that stocks are "too risky", or that they'll be more likely to make money with property, or that they don't trust the stockmarket. Whatever. Only when you start hearing the bloke opposite you give you stock tips and saying "shares never go down" or "shares always go up in the long run" or "you can't lose with shares" that you should be wary of a long term peak. IMHO, we're still far from that stage.

[Van]

This may have been posted before, so apologies from me if it has.

It makes good reading about characteristics of bubble markets and the behaviour of people.

Well worth a read. I liked these quotes which can be applied to our housing market:

<<<If it were possible for everyone to win in the markets, this would mean that money is being created from nothing. The creation of money, in this manner, is impossible. Therefore the markets are a zero-sum game. Zero-sum means that for every winner, there is a loser. The winner takes the losers money. Zero-sum games are games where the amount of "winnable goods" is fixed.>>>

I agree with the rest of the piece, but this bit I disagree with. You have to make the distinction between speculating (trading) and investing.

Trading is a zero sum game. In fact, it's a MINUS sum game. For you to win, someone has to lose, and you BOTH have to pay the commission. You are speculating on a move in the shareprice (up or down), and not bothering with the long term prospects of the company.

Investing is an entirely different board game, where the vast majority CAN be winners. If you are investing, you are buying shares in a company which you believe can make more money in the future. So you buy and hold on the the shares while the company goes on making money month after month, year after year. After enough time, the company should have grown it's earnings, which should be reflected in a higher shareprice. All this takes time, however, and not something that happens overnight.

People often confuse the two, but the two extremes are as different as chalk and cheese.

[Guest muttley]

I agree with the rest of the piece, but this bit I disagree with. You have to make the distinction between speculating (trading) and investing.

Trading is a zero sum game. In fact, it's a MINUS sum game. For you to win, someone has to lose, and you BOTH have to pay the commission. You are speculating on a move in the shareprice (up or down), and not bothering with the long term prospects of the company.

Investing is an entirely different board game, where the vast majority CAN be winners. If you are investing, you are buying shares in a company which you believe can make more money in the future. So you buy and hold on the the shares while the company goes on making money month after month, year after year. After enough time, the company should have grown it's earnings, which should be reflected in a higher shareprice. All this takes time, however, and not something that happens overnight.

People often confuse the two, but the two extremes are as different as chalk and cheese.

I agree with you Van.

Of course I had to learn the hard way.

[DonnieDarker]

Stocks have risen a long way in the last 3 years, but I think there is STILL A LONG WAY TO GO!

Sure, there are major turning points, but stocks are still off the radar of far too many people for us to say that mass opinion has been formed.

Ask 100 people at your workplace, what they think of stocks. Many - I think most - would say that stocks are "too risky", or that they'll be more likely to make money with property, or that they don't trust the stockmarket. Whatever. Only when you start hearing the bloke opposite you give you stock tips and saying "shares never go down" or "shares always go up in the long run" or "you can't lose with shares" that you should be wary of a long term peak. IMHO, we're still far from that stage.

Good post.

I am a rank amateur when it comes to stocks but everyone at work thinks Im some kind of investment guru. Very few of them are into stocks for the reasons you mention.

There is a long way to go for stocks yet and I also think for those who have bought in the last couple of years you will see big increases as this Bull market accelerates.

The mistake I have made in the past is selling shares too early...experience has taught me that the biggest rises happen near the cliff-edge.

From what I have heard a lot of the money pouring into the FTSE is from overseas investors anyway.

I'm looking forward to shoving another £4K into the market when my ISA allowance comes round in April.

[newbie]

Why would anyone waste their time on Http://www.stock-market-crash.net/ ?

Everyone knows that the stocks and shares only ever go up. The problems that happened in the past were unique. It's all different this time. Foreigners and immigrants are hoovering up much of the FTSE 500.

Young families should be taking out 40 year mortgages IO to invest in the stockmarket lest they miss the boat and never get on the investment ladder at these great P/E ratios which can only go up from here.