All price rises inevitably end up in bubble. But all price-rises are not bubbles-
We funnily see reporters like Udayan Mukherji when talking with international economist/experts and such other market participants and serious-facedly talking about bull-run eventually turning up into a bubble or ‘possibly’ ending up in bubble. And the interviewee also respecting his answer generally responds into affirmation. And many times using diplomatic languages in even talking about the most obvious thing.
Many times we are fed up with the ‘dramas’ of the business tv channels reporters. But as we have mentioned in our earlier articles, that they poor guys have to ‘fill the airtime’. After all they are not paid to teach the investors or given salary out of SEBI’s investor protection fund! May be SEBI should think of starting investor protection tv channels! Or may be not!
Let’s come to point.
We want to talk about the
frequent use of word ‘bubble’ and their talk on market being or going into bubble zone when prices of stocks are rising. As our title reads ‘every price rise inevitably end up in bubble’. The word inevitably could be a little bit too much but had to be used to let the reader understand the extremeness of the meaning and event/phenomena we are talking about.
frequent use of word ‘bubble’ and their talk on market being or going into bubble zone when prices of stocks are rising. As our title reads ‘every price rise inevitably end up in bubble’. The word inevitably could be a little bit too much but had to be used to let the reader understand the extremeness of the meaning and event/phenomena we are talking about.
The other line says ‘all price rises are not bubble’. Thus, how it goes is that when prices rise it is not every time fake or manipulated or euphoric and exaggeration from the beginning itself. This is what it means by this sentence. However, as our former sentence goes, that these price rises of any security, stock or commodity it might be, ‘usually’ or to say ‘inevitably’ end up in bubble. And this is due to simplistic reasons of behavioral anomalies. The fancies, exaggeration and extremes of expectations which make up of a bull market, which typically always create bubble situation. One important thing for an investor is that a bubble is not necessarily the situation of ‘everything’ on the floor is fancily over-valued and expensive.
There may be ‘non-bubble’ scenarios in individual stock pockets and sectors while the rest of some part of market is into craziness which is driving the over-all craziness in main indices. The point is that some value-investor completely prefer to stay out of markets during bull-runs and thing of only buying in bear phase could be proved to be flawful thinking if this aspect considered.
There may be ‘non-bubble’ scenarios in individual stock pockets and sectors while the rest of some part of market is into craziness which is driving the over-all craziness in main indices. The point is that some value-investor completely prefer to stay out of markets during bull-runs and thing of only buying in bear phase could be proved to be flawful thinking if this aspect considered.
Whenever prices of something start rising this needless fear of ‘bubble’ is put upon mainly by tv channel reporters. Where infact the observance of history has suggested us that they all mainly were the beginning of bull markets or a re-rating in valuations or some fundamental dynamic change altogether in economies, markets, asset classes, of companies. While on the other hand this run up is stretched and the prices have continued to rising without looking back than these people have to admit and attend to them and entice and induce, directly and indirectly, investors to ‘get in’ the ‘growth’. And most often then not, the peak is near and the ‘bubble’ has already been formed if not at last stage being prickled.
Take example of say, gold or silver prices. During the midst of year 2010, there were more than normal talks about the gold being a bubble. Many people had their arguments but it was not a bubble, is still not. Because on several parameters gold is not looking overvalued. In fact its rise as asset class will work as cushion if when the global equities will come in favour and fears of ‘sovereign-debt-debacle’ and inflation substantially if not completely recedes. At the same time, gold will be in bubble. As mentioned. There will be times and intervals that one would have to obvserve and undertake reviews regarding the prices and situations in other asset classes, global geo political situation, interest rates, inflation and money flow in addition with global economic growth. Thus, one would be able to understand at which point possibly the asset has gone into’ bubble’ phase. Because all asset classes or price-price rises do fall in bubble-zone. But as said that all price-rises are not bubble, to add, not at all times. Imaging people talking about Indian market bubble when in the beginning of the 21st century decade, sensex started rocketing from 3000 points only to 21000 in next less than 8 years. Don’t you think anyone would have said it is bubble? In fact more and more people. The first being the tv reporters (who again have to fill the air-time..)
One another lesson or suggestion comes out of this article is to consider all that is said and opined on tv channels to take them discretionarily and not as a professional/genuine/matured/neutral/good faith advise in/of any sense.
Please mind that there are two phenomenas, and the common, small, or general investor mostly skips to understand. One is bubble and another is bubble prickling. The 1. Bubble-includes the beginning, continuance and existence of price-rises which are not reasonable to generally believed and practiced standard of value investing, and also such other established principles of fundamental long-term investing. Here please consider overall market and leading indices in example, as prices of some individual companies might run through the rough due to sharp growth in business which is absolutely warranted and logical. The another 2. Is Prickling of bubble- yes, the prickling of bubble is the end of that era of bull market. Generally the leading indices normally at the most halves from their ‘peak’ made in 1.bubble phase. The investors loses if they remain outside the markets during1.bubble, and if remain inside during the 2.bubble prickling. According to my assumption, investors enter between the midst and peak of the 1.bubble phase and most remain in while the 2.bubble pricking phenomena.
One might summarize, that all price-rises mostly and do end up in bubble and then burst of that bubble due to reasons obvious to feeding of bull run; at the same time all price-rises are not bubbles, see it from individual stock/asset class perspective which could be not overvalued and expensive and which has just started gaining investor attention and started rising; so as to not lose opportunity of investment due to this now, over-generalized talk and discussion about and on word ‘bubble’, which has been made into/invented to be a good ‘air-time filler’ than in any sense showing concern for investors for manipulative and speculative forces and sources…..
Thus, next time you here a chat on possible bubble (usually once in a week or may be more) on blue, saffron and all colors of biz news channel; you might want to use some or more than some discretion in making any mind on price-rises and those people’s views who are talking about it…it’s simply that you will not want to get amazed neither feared…
To add last,
- All bubble get burst
- All price-rises inevitably end up in bubble
- All price-rises are not bubble
You might also like to read another article on ‘why bubble continue to create?’ here,
(Actually this piece of article was written during Diwali (October 2010) but mis-placed and is published now-which however is, a going on, slack phase in markets for around more than a quarter now)
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