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Retirement Videos 84 videos

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Finance: What is a Bubble? 5 Views


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Description:

What is a Bubble? In markets and economic cycles, any kind of rapid run up trend characterized by over exuberance and emotion over fundamentals that is followed by a collapse and subsequent contraction is called a bubble. The analogy is not unlike that of a soap bubble: it expands rapidly and its fragility inevitably leads to the bubble bursting when it gets too large.

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Transcript

00:00

Finance allah shmoop what is ah bubble All right well

00:06

this is a bubble See what happened there got bigger

00:10

and bigger and bigger And then it popped and here's

00:13

the stock market from about nineteen Ninety two until about

00:16

two thousand It got bigger and bigger and bigger And

00:19

then it popped And yet was a bubble not just

00:22

a big fat bull market It was a crazy ludicrous

00:25

tulip mania Kind of time like start ups with almost

00:29

no revenues trading and billions of dollars Yep And tulip

00:33

mania That was a really thing One tulip sold for

00:36

forty grand go figure wasn't like if you ate it

00:39

you lived forever So yeah it was a bubble So

00:42

what caused the ninety nine bubble Well greed and it

00:45

wasn't good At least for some The internet had come

00:48

along It was a new thing consumers by the millions

00:51

could download in the privacy of their homes Art films

00:56

Yeah That's what we'll call them art films by the

00:58

terabyte money was flowing from silicon valley investors into startups

01:02

at record pace hoping to take advantage of this new

01:05

amazing internet thing and the valuations of companies got higher

01:08

And higher and higher Nasdaq went up some four hundred

01:12

percent in just half a dozen years and the blessed

01:14

cos traded at one hundred times trailing revenue not earnings

01:18

but revenue So if you think about the idea that

01:21

if you invest a dollar and you want to get

01:22

more than that back and that dollar comes from profits

01:26

of companies than one hundred times revenues cos we're probably

01:29

something like five hundred times earnings or more So for

01:32

one hundred dollars oven investment you've got like a dollar

01:35

of revenues in twenty cents of potential earnings Like maybe

01:39

a a decade later maybe yeah that's a bubble and

01:43

it burst At least you don't have that danger with

01:46

actual tulips or bitcoins Yeah they take bitcoins when you

01:50

buy tulips Would be kind of a good marriage there

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