Since the late 1990’s, we can identify three major asset bubbles, that investors worldwide have been misled and fooled by, eventually causing them to lose a part of their wealth in two different, but parallel ways: first, by buying stocks only to reveal later on that the prices fell drastically. Second, by stocks selling way too early, only to miss the prices rise.
NASDAQ Zigzagging
The first bubble in line were the technology stocks (the Dot-com bubble) which rocketed sky high due to over excited investors, rising to such unbelievably great levels, that other “thought to be” bubbles at the time didn’t even scrape.Among the tech bubble’s significant victims you can find online entrepreneurs such as “Boo.com”, “EToys” who went bankrupt at the time and other sites such as “GeoCities” who invested heavily at the time, feeling euphoric and is expected to shut down soon. As a measure of this wild goose chase the NASDAQ index rose at the beginning of the new millennia to a rare peak of 5,049 points. These days, that index still stands below 2,000 and doesn’t show any signs of returning to its glorious “golden age”.
The next to upset the natural order of things, was the housing boom, whose prices came soaring to never seen before levels from the mid 90’s until the preceding couple of years of decline. The Real Estate Bubble affected many countries around the globe, including economic powerhouses such as the United States, Japan, Britain, India, Dubai and many more.
Finally, the oil prices madness, which hit hard, as oil prices top around 150 U.S. Dollars a barrel. Since then, the price has gone down and as experts say will continue declining after the economy completely recovers from the recession.
Given these situations, it’s not difficult to see the common ground, all of the bubbles were inflated by the investor’s greed to earn way over what is considered a normal value of return. So how are things today, do we have any asset bubbles and moreover, forthcoming bursts? The answer to either question is “Yes”. Take the U.S. Treasury long bonds and the value of the dollar, for instance. Global economic fear has driven investors from the realms of the Forbidden City of Beijing to the regions of the Big Apple, seeking shelter for their piggy banks and in the course of things choosing the Treasury Bonds as the safest of all. These massive Bond purchases combined with the trend of selling equities has pushed the prices of the bonds to heights not seen in the last 50 years, and we are certain you know what currency buys U.S. Treasury Bonds.
Hence when the time comes and investors will start estimating that the economic risks are down low and equities are the right move, they will no longer take interest in the bonds and start selling them, producing all around losses for other investors who have a large amount of their dough tied up in long bonds, incidentally plunging the dollar.
Using advanced business simulations such as the CEO game, the serious game of business, you will be able to simulate and observe your investment strategy and market wide economic trends as they take effect. Therefore understanding beforehand the consequences of your pre-made decisions and learning how to calculate and predict your next true actions. Gaining this knowledge is valuable since experience is the name of the game. At last, always remember that cash cows don’t yield forever, sometimes just because of the milkman himself.
Omer.
The CEO Game.
September 3rd, 2009 at 1:19 pm
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September 24th, 2009 at 11:26 am
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September 24th, 2009 at 10:29 pm
Good day, sun shines!
There have were times of hardship when I didn’t know about opportunities of getting high yields on investments. I was a dump and downright pessimistic person.
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