Tag Archives: stock market crash

is 2021 the year of the bull?

My Outlook for 2021

Stock Market – While we are in good Bull rally so far in terms of Market in US, India and most of the parts of the world, we may see some rotation or correction going forward. By Rotation I mean we may see a flip or the Investments flowing more into the sectors of the market like Metals, Auto, Banks that was ignored in 2020 away from the stars IT, Pharma. Also there is nevertheless a chance of double digit correction in 2021, and this is where we need to be cautious and hold for long, not panic sell like most of us did in 2020. (If you are new to stock market you can open an account with Zerodha here)

Bitcoin/Cryptocurrency – Cryptocurrency specifically Bitcoin may see a slight correction going into 2021, but nevertheless the concept of Cryptocurrency is promising and it looks like it is here to stay for long at least unless an alternative is found. So I would like to be Vigilant here and Invest in dips. Remember always do your own due diligence before investing. To know more about Crypto click here.

Gold/Precious metal – I think Gold still holds value, and can surpass its 2020 high by 2021 end. Given the volatility in Market, and monetary policies of Govt., Bitcoin & Gold both can shine together for most part of this decade. Also this looks like the asset where Smart money will keep on flowing for most part of 2021. (Sovereign Gold Bonds is one good option if you are looking to invest in Gold in India, and best place to buy SGB is in open market using demat account like zerodha as the prices there are usually lower than current market price).

Real Estate – Now this is something I am totally unsure of, while Commercial real estate looks to be in decline, residentials and real estate in general may see some positive growth in 2021. I am expecting more growth in tier 2 & 3 cities compared to tier 1 in India.

NoteWhile above is my Outlook for 2021, By No Means I am here to encourage or influence you to make your Investment. Always do your own due diligence before Investing.

Read More here –

Thank you for reading. I wish you loads of Happiness, Health & Wealth in 2021. Happy New Year!

CAN 2021 Stock market crash?

Will Stock Market rally continue well beyond 2020, or Is Market likely to Crash in 2021? Lets discuss all this and more, lets dive in.

Stock Market can Crash if

  1. Unemployment – Number further rises
  2. Lockdown – More restrictions are put in place in people movement during Covid
  3. Disconnected Economy – If the Economy continue to remain disconnected from Stock Market due to several factors like current Monetary policy.
  4. Lower Profits – If Company realizes the profit are not back up even after opening up the stores.
  5. Geo Politics – Geo Political factors like Indo-China or US-China tensions further aggravates it may push up the VIX (volatility Index) and bring down the stock market.

Stock Market can Rise if

  1. Stimulus continues – This one applies especially to US Stock Market, if Congress decides and agrees on stimulus paycheck you will probably see the new all time high continues…
  2. Vaccine knocks your door – This one goes for Global toss, Vaccine launch will lead Economic recovery and all uncertainties will fade away leading the Market to continue to rise.
  3. Bad Priced In – Stock Market looks ahead of its time, and one theory is the bad is already priced in so Stock Market will continue to rise in the near foreseeable future.
  4. Govt. Intervenes – If Govt. continues to intervene and keeps the interest low, leading to Inflation and the stock Market rise.
  5. Recovery Stocks – If some sectors continue to perform well like the IT and Health care, it may overall skew the Market to achieve the all time high.

Data suggests Stock Market Crash or corrects double digit every 6.9 years.

So, What to do if it Crashes?

  • Don’t Panic Sell
  • Keep yourself diversified
  • Keep some emergency cash

Read more to know more-

Thanks for reading, Happy Weekend, Happy Investing!

Bubble, oh no!

Time for some experiment: Pour a cup of dish soap into 6 cups of water & stir it well. That is how Bubbles are formed, now you burst it!

Oh no!, not the Bubble Minku loves. Lets do it again.

Increase the price of an asset significantly surpassing way beyond its true value, and make the majority believe the price will continue to rise at least in the foreseeable future. There you go, that is exactly how Financial Bubbles are formed. Eventually the reality kicks in, and like every bubble it bursts!

Welcome to riteFinance, this is your host SalRite, With some saying the current Stock Market is in Bubble, today lets discuss about Financial Bubbles.

As per the legendary Investor Warren Buffet, Bubbles form when “People see neighbors ‘dumber than they are’ getting rich“.

Financial or Economic Bubble is not a new thing, in fact the official history of the first ever recorded Bubble dates back to as far as mid 1630s, though the term itself was coined around the 1720 AD. To dig a bit deeper, lets understand the five stages of an Economic Bubble with the example of what is known as ‘Tulip Mania’ of mid 1630s.

Stage 1 Tulip comes to Vienna from Turkey, are soon distributed to Netherlands and becomes a status symbol in Dutch community. With a saturated intense petal color that no other plant had, and a profusion of varieties, Tulip soon becomes a coveted luxury item, increasing its asset value. This stage is referred to as ‘Substitution‘.

Stage 2 – This is when the news of Tulips start spreading, and becomes a topic among the majority . It is now that the Speculative purchases happen, and the bets are placed on the future value. As the flowers grew in popularity, professional growers paid higher and higher prices. Buy now, sell later at a higher price becomes the motive for Investors. This is referred to as ‘TakeOff

Stage 3Exuberance – a state of unsustainable euphoria. This is when the asset overshoot its intrinsic value leading to a jump in the portfolio of several. A few lucky/rational Investors sell at this stage, while the majority continue to buy in. At this stage Tulip becomes over-valued. At its peak, value one Tulip bulb was equivalent to a House. By around 1636, the tulip bulb became the fourth leading export product of the Netherlands, after gin, herrings, and cheese. Tulip mania reached its peak during the winter of 1636–37, when some bulbs were reportedly changing hands ten times in a day on paper (it is the time when future markets appeared in Dutch Communities).

Stage 4Critical stage – a state where some begin to sell. When the market realizes that an asset is over leveraged and way too over valued, some begin to lose faith and starts selling. This is when they realize there aren’t enough buyers. For Tulip it was the revelation of their true value. In around February of 1637, for the first time in a routine auction no buyers were available for the Tulips. This time coincides with the outbreak of Bubonic Plague in some European Cities. This lead to the 5th and last stage of a Bubble.

Stage 5Crash (pop) – Burst of the bubble, and the reset for the economy. In case of Tulip, Bubonic plague probably acted as a needle that led to the demise of its Market. With no buyers available sellers were left with nothing but a flower.

A few hundreds years later, now a Tulip is worth a few bucks and can be ordered online, but nevertheless bubbles keep forming and keep popping. As we humans are irrational beings. This leads to another story, this one more recent.

2008 Housing Bubble

This was the result of irrationality of the masses combined with financial engineering of the elite few, the Bankers. Lots of Subprime loans were made between 2004 to 2006 rising from 8% to around 20% in the United States, at the same time NINJA loans (No Income, No Jobs, and No Assets) grow in popularity and many of the Millennial with lesser Income would write a higher figure in the application, that no one in Banks would verify and they will easily sanction a loan. The greed of the Bankers didn’t stop here they combined all the A, B and C rated loans packaged them into something called CDOs (Collateralized Debt Obligation – a type of structured asset-backed security that include mortgages, loans or bonds), and sold it to the Investment Banks, betting further on loans. As if this wasn’t enough the CDOs were swapped for Insurance what is called as Credit Default Swaps. CDS acted as a financial instrument that could hide these risky investments (to read more on CDOs or CDS click here) Even the rating Agencies like S&P didn’t downgrade the bonds & kept ratings high. Couple this all with Inadequate regulations by the policy makers, and you see a Huge Economic Bubble.

Eventually, the home owners defaulted on their payment, this meant the riskier loans, CDOs hold by Investment Banks all lost their values, and suddenly the whole Financial system collapsed on its weight. Lehman Brothers the fourth largest investment bank in US back then filed for bankruptcy. And the Market corrected itself, not exactly though, the fed came in, and bailed us out. Enforcing strict regulations, and making much required policy changes combined with Quantitative easing kept the US Economy on its track.

Even before 2008 crisis, which is the most recent one (prior to this pandemic) there were several Economic Bubbles. One such was the dot com bubble of 2000, caused by excessive speculation in Internet-related companies. While several big companies like pets.com went out of Business, it was not the end for all, with growth in the technology sector stabilized a few like Amazon.com, eBay saw rise in their Market Share following the crash.

Another Bubble that can be looked at, dates back to 1840s Great Britain. Referred to as Railway Mania, this was the period when the shares of Railway Companies soared in their value, only to be declined later. Following the crash, the larger railway companies such as the Great Western Railway and the nascent Midland began to buy up strategic failed lines at a discounted price to expand their network. So what was the down fall of some, became an Opportunity for others.

Bubbles are primarily of two types –

  1. Equity Based – characterized by easy liquidity, tangible and real assets like tulip mania, railway mania and dot-com bubble.
  2. Debt Based – characterized by intangible or credit based investments with little ability to satisfy growing demand in a non-existent market like United States Housing Bubble (of 2008).

Can we predict these bubbles?

Well, we may not be able to predict accurately nevertheless we can identify it, based on the over leveraged asset price, high risk lending or borrowing practices, and when the people tend to rationalize borrowing, lending and purchase decisions based on expected future price rather than the ability to repay.

What can we learn?

There are few things that these Bubbles teach us –

  1. In every crisis lies an Opportunity, only if one knows how to capitalize on it.
  2. Bubbles are natural, every Economy goes from a Boom & Bust Cycle.
  3. Certain theoretical research models states that bubbles (as long as they do not burst), raise economic efficiency and welfare.
  4. Regulations have a big role to play in an Efficient Market.

If you want to read more about how the Bubbles work, there is a great article you can refer here.

Thanks for Reading, Lets us know what you think about the current Stock Market scenario in the comments below? Do follow us for more @ritefinance