Saturday, January 6, 2018

Five Steps of a Bubble

          Courtesy : Investopedia


1.    Displacement: A displacement occurs when investors get enamored by a new paradigm, such as an innovative new technology or interest rates that are historically low. A classic example of displacement is the decline in the federal funds rate from 6.5% in May, 2000, to 1% in June, 2003. Over this three-year period, the interest rate on 30-year fixed-rate mortgages fell by 2.5 percentage points to a historic lows of 5.21%, sowing the seeds for the housing bubble.

2.    Boom: Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be an once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of participants into the fold.


3.    Euphoria: During this phase,caution is thrown to the wind, as asset prices skyrocket. The "greater fool" theory plays out everywhere.
Valuations reach extreme levels during this phase. For example, at the peak of the Japanese real estate bubble in 1989, land in Tokyo sold for as much as $139,000 per square foot, or more than 350-times the value of Manhattan property. After the bubble burst, real estate lost approximately 80% of its inflated value, while stock prices declined by 70%. Similarly, at the height of the internet bubble in March, 2000, the combined value of all technology stocks on the Nasdaq was higher than the GDP of most nations.
During the euphoric phase, new valuation measures and metrics are touted to justify the relentless rise in asset prices.

4.    Profit Taking: By this time, the smart money – heeding the warning signs – is generally selling out positions and taking profits. But estimating the exact time when a bubble is due to collapse can be a difficult exercise and extremely hazardous to one's financial health, because, as John Maynard Keynes put it, "the markets can stay irrational longer than you can stay solvent."
Note that it only takes a relatively minor event to prick a bubble, but once it is pricked, the bubble cannot "inflate" again. In August, 2007, for example, French bank BNP Paribas halted withdrawals from three investment funds with substantial exposure to U.S. subprime mortgages because it could not value their holdings. While this development initially rattled financial markets, it was brushed aside over the next couple months, as global equity markets reached new highs. In retrospect, this relatively minor event was indeed a warning sign of the turbulent times to come.

5.    Panic: In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with margin calls and plunging values of their holdings, now want to liquidate them at any price. As supply overwhelms demand, asset prices slide sharply.
One of the most vivid examples of global panic in financial markets occurred in October 2008, weeks after Lehman Brothers declared bankruptcy and Fannie Mae, Freddie Mac and AIG almost collapsed. The S&P 500 plunged almost 17% that month, its ninth-worst monthly performance. In that single month, global equity markets lost a staggering $9.3 trillion of 22% of their combined market capitalization.




80 comments :

  1. Dear Sir,
    Wish u happy new year.
    With yur blessing i am in good profit in Balalji Amines & Websol which bought after your recommandation at very lower price which trun out to be change of my & my family life.still holding the same.
    I hope you must be tracking the both company.Please up date your idea on both the company present & future business prospectus.
    Awaiting your response.
    A big salute to you sir,
    Regards

    ReplyDelete
    Replies
    1. If you are not a low risk investor keep the status quo.

      Delete
  2. Sir, what is your view on ASTEC LIFE SCIENCE ? i'm holding since one year but no further movement. is it worth for hold longterm ?

    ReplyDelete
    Replies
    1. Entry price is very important in case of any investment.Actually Astec is a stock suggested at Rs.57 which already given 10 times return at CMP Rs.619 . Not expecting half of that speed in appreciation from hereon.

      Delete
  3. Good Morning sir. As you know most of the companies valuations are very high. Do you think Bubble burst is near by...

    ReplyDelete
    Replies
    1. valuation is not a constant one ,improvement in corporate earnings can also change the equation , but unnecessary hype in the stock price of poorly managed one's is a real concern.

      Delete
  4. nice read, thx
    Sir, whats your view on Sanwaria Agro. What you think will be the value of the share by end of this year. thx

    ReplyDelete
  5. Thank you for the reminder.

    I understand everyone's opinion might differ but whats your personal opinion about where do we stand at the moment? Between boom and euphoria? or are we into euphoria already?

    ReplyDelete
    Replies
    1. Not interested for a generalization, but one should consider the situation in each individual stocks before deciding on fresh investment

      Delete
  6. Thanks for sharing your insights,please do share your views about Prakash Constrowell
    Kallam Spinning Mills
    Acknit Industries
    TIC ltd
    Aro granite industries
    Aurionpro
    South Indian Bank.

    ReplyDelete
    Replies
    1. Sorry,not tracking any of these companies

      Delete
  7. Any change in view on IDFC BANK sir ?snd what’s view on steel sector ?

    ReplyDelete
    Replies
    1. No change in IDFC Bank .

      In case of Steel Companies - We all know the reason of rise in steel companies is mainly due to the protection duties on Chinese import to protect local producers ,but my doubt is when inflation inching up continuously how long government can continue such duties on many such items . keeping fingers crossed

      Delete
    2. VP sir

      What is your opinion about CAPITAL FIRST acquisition by IDFC?

      Regards

      Delete
  8. Sir any views on NOCIL at CMP?

    ReplyDelete
  9. Dear sir
    Do you tracking any of following
    Ester industries
    Creative eye
    Pochiraju industries

    Thanks regards
    Varkumar

    ReplyDelete
  10. Dear VP sir, wishing you vry happy prosperous & healthy new year 2018. I had lost huge amount in stock mkt by following unscrupulous advisors in MMB in initial years. I feel very fortunate to have come across your blog & two others wherein I have learned quite bit about studying stocks & building conviction & above all having patience for long term gains. My portfolio is finally green. Thanking you from the bottom of my heart.

    ReplyDelete
    Replies
    1. :) ,Try to stick on a successful strategy and ignore the voice of crowd . If is easy to gain wealth but sustaining on it is most important . Discipline is the most important part in it.

      Delete
  11. Dear Sir, could you please give your views on Marico at current levels?

    ReplyDelete
  12. Hi VP Sir,

    Please provide your views on below stocks,
    ZEE Media, Haldyn Glass, Sarla Performance, Dwarikesh Sugar.

    Thanks in Advance,
    Ranjeeth

    ReplyDelete
  13. Hi sir,

    Any view on Oberoi Realty, Prakash Ind at cmp. Both has moved in past few days. Can we hold..? Please reply

    Regards,
    Kartheek

    ReplyDelete
    Replies
    1. Tracking only Prakash which earlier suggested at Rs.61 . Prefer to hold.

      Delete
  14. sir,your view on irb invit for 1-3 years??

    ReplyDelete
  15. Hi sir, Please let me know your views on following companies Akar auto tools, Chordia foods, Yash papers, Manaksia aluminium

    ReplyDelete
    Replies
    1. Sorry ,not tracking any of the companies mentioned above.

      Delete
  16. Hello Sir,
    What is your current view on one of your old suggestion Orchid Chemicals & Pharmaceuticals Ltd.?
    Thanks.
    Regards,
    Ashish

    ReplyDelete
    Replies
    1. Though the company having USFDA approved assets and a good pipeline of products ,they could not manage debt trap and currently going through corporate insolvency proceedings . Considering their assets, I believe there may be many takers for Orchid . But the real issue is, at what terms and conditions (regarding its capital structure) the deal will happen . We cant say at this point whether it will happen positively for minority share holders or something will happen against the interest of share holders (as in the case of Dalmia Bharat's take over of Murli Indutries)is a big question.

      Delete
  17. Hi VP sir,recently garnet international a listed player bought 55000 shares of danlaw technology,is anything interesting about this company.

    ReplyDelete
    Replies
    1. What is interesting in this company is their connection with an upcoming disruptive technology (Connected cars) . Though the usage of this technology is at nascent stage even in developed countries at present, it is expected to catch up very fast from hereon. Usage of this technology extents from simple form of GPS fitted vehicles to complex form of Driver less cars. One company named Danlaw Inc ( privately owned by promoters of this listed company ) is an important player in this technology in USA. As we are aware Airbag will be mandatory for vehicles in India in near future. Like this, I believe GPS will be mandatory at least for public transport vehicles in future. This will open up a very big opportunity for companies like Danlaw. I hope, if promoter is really interested to create wealth through this listed entity there is enormous opportunity in coming years. In addition to that, data loggers (https://www.danlawinc.com/datalogger-3-2/)
      are expected to play an important role in vehicle insurance business. In nutshell I believe there is large scope for their business but as regards to listed entity’s future everything depends on promoter’s integrity (whether he will do the business through listed entity or private company in India ) .

      If anybody is interested to know more about it, go through the below links:

      http://www.wsj.com/video/the-connected-car-and-the-future-of-transportation/BA4E5463-D589-444C-8E9F-14C9B4C9308A.html

      https://www.youtube.com/watch?v=Zuf2VNWGMnY

      https://www.youtube.com/watch?v=sdFlqfpv41s

      https://www.accenture.com/in-en/insight-connected-vehicle


      https://www.youtube.com/watch?v=kvjyaDpv7pA

      http://www.gdnonline.com/Details/303339/Kia-to-adopt-connected-car-tech-for-all-cars

      https://www.youtube.com/watch?v=o0BUodHMJBI

      https://www.youtube.com/watch?v=3AbCFEBN960

      https://www.prnewswire.com/news-releases/danlaw-becomes-a-siemens-plm-solution-partner-300488007.html


      https://www.businesswire.com/news/home/20170518005743/en/Usage-Based-Insurance-Global-Market-Grew-32-2016


      Above views are purely personnel and not a buy recommendation. Just intended for study purpose for those with some academic interest.










      Delete
  18. GM VP Sir,

    What is your current view on Aimco and Websol after the results. Currently Hold both and in profits.

    ReplyDelete
  19. Dear VP
    I have been following you from your initial years. Recently i have found that a prominent person from investment fraternity criticizing you regarding your recommendations like subex, mic etc. These are guys who pays to the channel and blabber. Above all these are guys who are in the loop of several big time investors who mints money thru tweets. I wanted to ask these so called perfectionist that how many poor retail investors he helped publicly. A guy like Jhunjhunwala openly says that he did not want to disclose the trade secrets. You are the only person who discovered 100 baggers more than anyone in this country for the common man. i know you could not argue with that man. I would be doing injustice to myself if i do not write this much. Not even a single person who benefitted from you replied to that hypocrite just coz he is a well know figure. These are guys who makes money by hook or crook. Otherwise how come he landed at your blog where we commoners are your best followers. Thanks VP.

    ReplyDelete
    Replies
    1. Dear

      I started writing this blog few years back just to spread a message - 'Investing in Companies' and their business and not in Stock market.

      Just shared few thoughts all these years to my friends to avoid mistakes which myself committed years back when I first came to market during my collage days. I have no wishes to become the King of stock market or become popular but prefer to stay among one among you and believe peace of mind is above all .All these years I have committed lot of mistakes and given suggestions of stocks which eventually resulted in loss due to my miscalculation of facts or events . But I never tried to mislead my readers for my personal gain .Heared lot of curse in case of stocks like SKM, MIC, Pioneer..etc all these years and still it is continuing . I think it is part of life and no complaints about it. But I have a small request to investors . From an investment point of view, any stock is a good investment only at a fair price and not at any price. So before buying any stock one should study well and take pain to understand the business and its worth.Don't buy any stock only because the next man buying it but analyse whether the same is suitable for us based on our investment philosophy .

      Delete
    2. No need to study security analysis and all other thick books.all your comments are teaching us fundamentals .thanks a lot sir

      Delete
  20. please share your views on dhanlaxsmibank,bajajhindustan,sakthisugar,maxventure.i have all this companies guide me

    ReplyDelete
  21. Dear Sir, Whats your view about ESSDEE ALUMINIUM.Still can we hold it for long term considering risk involved.Or else need to book profit? Tks.

    ReplyDelete
    Replies
    1. Dear

      I don't know on the basis of what you invested in ESS Dee if you invested in last two years. If you invested in this company on expectation of restarting of plants ,it is not happened so far and hence it is not the time to sell and on the other side if you put your money in Market just for few bucks in short term It may be the time to sell and exit. :)

      Delete
  22. Hi value pick ji, Please give your comments on the following:
    1. Virinci
    2. Asian Oilfields
    3. Precision Electronics
    4. Lactose

    I am invested in the first two. The 3rd, Precision Electronics you had said earlier that it is in a turn around situation. Can I invest in these two at these levels i.e. Lactose and Precision Electronics??

    Awaiting eagerly for your kind response.

    regards!

    ReplyDelete
    Replies
    1. Precision electronics not showing any consistency which is a concern.

      Prefer to hold the rest , for risk takers.

      Delete
  23. Happy Sankranthi sir.. Thank you so much for your valuable suggestions.

    ReplyDelete
  24. Dear Sir, What are your views about Bliss GVS Pharma Limited? Should we invest in it with view of 2 years or so?

    ReplyDelete
  25. Sir, your views on mold-tek packaging and meghmani organics

    ReplyDelete
    Replies
    1. Tracking only Moldtek. A good company , one should keep tracking the price trend of raw materil

      Delete
  26. Sir your view upon Tube investment . Best steel logistics and Bilcare

    ReplyDelete
  27. Replies
    1. Since there is no clarity in ED related issues , stop tracking it.

      Delete
  28. Sir, could you please render your insights on:
    GVK Power, Zee learn and IVRCL

    ReplyDelete
  29. Hi Sir,

    What are your views on BSE limited and Himadri Speciality

    ReplyDelete
  30. Dear VP Sir Please share your view on Pincon Spirit at CMP

    ReplyDelete
    Replies
    1. Please go through the below links and take a call based on your risk profile
      http://www.moneylife.in/article/pincon-spirits-admits-arrest-of-its-chairman-monoranjan-roy-but-mum-on-why-it-failed-to-update-the-exchanges/52135.html

      https://timesofindia.indiatimes.com/business/india-business/sebi-orders-forensic-audit-of-pincon-spirit/articleshow/62178276.cms


      Delete
  31. Dear Sir, Could you pls give your views on Singer India(recently stock split happened) and its trading at CMP of around 57. Pls advise.

    ReplyDelete
  32. Dear Valuepick ji,

    I am an avid votary and follower of you. Can you pl give me your views on the following:

    1. ESS DEE Alluminium
    2. Subex
    3. Virinchi
    4. EPC Industries

    Can I invest in these stocks now? I am a long term (3-5 years ) investor without any compulsive time horizon in mind.

    Grateful for kind response.

    Regards!

    ReplyDelete
    Replies
    1. Ess Dee - explained above

      Subex- Considering the excess floating stock expecting range bound movement unless there is some corporate developments.

      Virinchi - Prefer to hold

      EPC - Waiting to see the impact of production from new unit.

      Delete
  33. Sir, Do you have any view on Rajapalayam Mills?

    ReplyDelete
  34. Dear VP Sir,
    Can you please put some light on Laurus Labs. They seems to have decent R&D facilities with some niche products and currently stock seems to be in a buying zone.

    ReplyDelete
    Replies
    1. As a company , decent one .May be a compounding type for investment

      Delete
  35. sir, your view on sika interplant?

    ReplyDelete
    Replies
    1. Seems fully values as of now based on current size of operations.

      Delete
  36. Hello Sir.

    Thanks for your recommendations and more importantly, the sustained guidance. Have learnt the abc of investing from your blogs and comments...Your recommendation on V2 retail was my first purchase and i need not comment on how it fared. Thank you!

    Can you please give your view on GMR Infra.

    ReplyDelete
  37. VP Sir, are you tracking GSS Infotech? any comments on it.

    ReplyDelete
  38. Sir DO you track Samrat Pharma.Read your views on Danlaw Tech which provides good information.
    thanks
    Regards
    PradeepKapoor

    ReplyDelete
  39. VP sir your views on Yuken and Intrasoft Terchnology please.

    ReplyDelete
  40. hai sir,

    sheela foams your view plz

    ReplyDelete

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