What Is An Economic Bubble? Stages Of A Bubble! Everything You Need To Know About A Bubble! (#46)

 

We've all heard of a Bubble in Share Market.... right?
 like, recently there was a tech Bubble Burst in the year 2000-2001....
& also, there are bubbles in Real Estate, as well.... you know it was the Housing Bubble bursts that lead to the worst Financial Crisis (of 2008) since the Great Depression....!

So Yeah! We've all herad of the term "Bubble"....
But have you ever wondered what is this "Bubble" all about in Share Market, Real Estate & all?
Pretty sure that you did wondered.... 'cuz that may be the reason that you are here.... right now....

Ok!
So today we are gonna talk 'bout what exactly a Bubble is.... & its 4 stages explaining-- how is it formed.... how does it bursts & what happens after it bursts....

So here we start with....

What Is A Bubble?

A bubble in general is a condition in which the prices of certain assets are skyrocketed by the investors because of their overly optimistic expectations & irrational behaviour!

Pretty sure.... this will make a lot more sense by the end of this article.... So continue reading!

Lets now talk bout the stages of an Economic Bubble.... So....,
Here We Go....

What Are The 4 Stages Of A Bubble?

●Stage 1: Excitement!

It is where the Bubble has basically started to form!
This is the phase where investors tend to get overly optimistic or excited over a new invention or anything such thing which is new in the market & have gained popularity rapidly.... so the investors just go onto investing in these companies causing prices to skyrocket.
Like.... for instance in the year 1996-1997.... as the internet was new.... but yet gained popularity pretty fast.... investors thought that the Tech Companies are gonna blow up & pay high returns in future.... so they just went onto investing in the Tech Companies causing the prices of those Companies Stocks to Skyrocket!

●Stage 2: Prices SkyRocketing!

Now, because investors go crazy over shares.... the Share Prices skyrockets! The price of the Share rises due to Supply & Demand! When the demand is higher than the supply is.... the Share Prices tend to increase rapidly & dramatically!

Just like in the dot com bubble the nasdaq spiked by over 50percent.

So the Stock Prices are pushed to a much higher level by the investors, than the stock's are actually worth in value.... & this clearly indicates that a Bubble have really been formed!
But thats a whole another thing that people  or even you and I barely even realise that a Bubble have been formed in the Market. Infact.... we usually realise 'bout Bubbles only when they Burst!

●Stage 3: Profit-Taking!

This is where some investors finally take a look around & tend to realise whats just going  on.... as soon as investors figure out that the asset they are investing in have reached its highest peak in price.... they cash out.... which means, that some of the investors sell there shares to claim the profit! But people to realise this....are very few!
So, you see.... even if taking part in Bubbles is a risky thing.... this is the only phase/stage of a Bubble where you can actually make money & earn some profit!

But again no one really knows when is this phase even going on!

●Stage 4: Complete Realisation & Panic!

This is the stage where all the investors realize how crazy things are.... & investors generally realize this when they just don't see the results they expected to see from investing in the Company -- so they basically realised what is going on because they didn't really got the returns they were investing in hope of....
So now the investors Panicked! & here, Panic IS EQUAL TO SELL; SELL; SELL; & SELL.... which is directly proportional to the prices falling down dramatically & HENCE, CAUSING THE BUBBLE TO BURST!

So these were the 4 stages/phases of an Economic Bubble....

Let's now talk 'bout....

What happens after a bubble bursts?

Well generally theres a fall in prices & if a sector for example like---- tech sector.... many companies go bankrupt.... there are less money making options for both people/investors n businesses.... some face problem to rise fund for sone time.... Worst bubbles causes worse situations like recession, crisis, etc..

Also read: An Article solely written on what is a Crisis & Recession!

Many times..... & in fact, most of the times we just don't realise that a bubble is going on until it bursts! Yeah thats how crazy we go over new inventions and innovations!

Today, Economists & Analylists can become pretty obsessed with trying to predict the next Bubble BUT who really knows the reality!

Thanks For Reading!