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What Do Stock Market Bubbles Represent?

By Jack Wogan

Stock market bubble is something that analysts find difficult to explain. That is why not many people are familiar with this term. Stock market bubbles are a division of the economic bubbles. The latter are explained by prices increases without real justification. The intrinsic value of the assets traded is definitely lower that their value on the market.

There are several approaches through which intents of elucidation have been made. The mathematical approach introduces another term related to the stock market bubble. The asset price bubble is the difference between the value assets are sold for and the face value. This difference occurs when investors try to boost prices.

The way they occur and the reasons this phenomenon takes place can be explained through a logical path of events. But all the sequences make analysts’ suppositions that greed is the main ingredient, more plausible than ever. Whenever an asset stirs too much attention a vicious circle takes place. Obviously greater demand leads to bigger prices. And bigger prices attract more investors. And it all goes on following the same path. At one moment in this cycle of events investors hold out selling, hopping for a bigger profit. This inevitably leads to a blockage and then to a crash. Speculation does not justify the inflated prices and investors end up in selling everything for much less than the real value.

A cycle like that led to the stock market bubble that preceded the Wall Street crash in 1929. Back then there was this frenzy of investing in the stock market and hopping that large sums of money would come back as a consequence of this choice. Furthermore people got loans to have more money to invest, encouraged by the higher prices of the shares. The cycle begun and at one moment no one sold anything. All this led to a sudden decline of the prices and people lost all they owned.

The only investors that were protected during the Great Depression that followed the Wall Street crush, where those who invested in gold bullion. Gold was like an isle of protection, because the intrinsic value of the precious metal justified the high prices.

Turning to professional advice on how to buy gold bullion is the best choice in times of recession.

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Topics: Investments | Comments Off

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Article Citation
MLA Style Citation:
Wogan, Jack "What Do Stock Market Bubbles Represent?." What Do Stock Market Bubbles Represent?. 22 Aug. 2010. uberarticles.com. 11 Apr 2015 <http://uberarticles.com/finance/investments/what-do-stock-market-bubbles-represent/>.

APA Style Citation:
Wogan, J (2010, August 22). What Do Stock Market Bubbles Represent?. Retrieved April 11, 2015, from http://uberarticles.com/finance/investments/what-do-stock-market-bubbles-represent/

Chicago Style Citation:
Wogan, Jack "What Do Stock Market Bubbles Represent?" uberarticles.com. http://uberarticles.com/finance/investments/what-do-stock-market-bubbles-represent/


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