Bubble Theory

  

No one wants their bubble of any kind to burst, particularly in the stock market. The bubble theory is a school of thought that says a stock or other asset can have a rapid rise in price well above its true value. This can go on for years, but without any warning the bubble bursts, causing the price to decline rapidly. Eventually, it could stabilize at a more realistic level.

Think of the “dot bombs” in the 1990s, where investors were frantically trying to throw money at Internet start-ups, even though many had no source of revenue. Eventually that bubble burst, leaving many with worthless stocks.

Besides the stock market, the bubble theory can take place in commodities, a particular industry, the housing market, or in a really comfortable bathtub. To avoid bubbles bursting, your best bet might be to avoid “cult stocks” that are overvalued, and stick with those that have healthy financials to back up a high stock price. Also, make sure the water's not too hot before you get in.

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Finance: What is an Aggressive Growth Fu...67 Views

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Finance a la shmoop what is an aggressive growth fund a go-go fund

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and/or a high-octane fund ah yes investment funds have oh so many [People put sticker notes on investment fund file]

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labels there are income funds comprised mostly of bonds usually in high yielding

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dividend kind of stocks and you can buy them managed like in the form of a

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mutual fund or unmanaged in the form of an index fund there are growth and

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income funds usually a combo of stocks and bonds so in theory the funds value [Value tree appears]

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grows but it also throws off a lot of cash along the way then there are just

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growth funds notice the word aggressive isn't in there on the volatility

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spectrum well they live out here right-hand side of the bell curve when [Growth funds on right side of a bell curve]

00:45

times are good they're very good when times are bad they're also not good in a

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good year a growth fund can be up 15 20 % maybe more in a bad year well down

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the same so now tack on the word aggressive in front of [Man puts aggressive label on investment fund file]

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that fund flavor and you can maybe double the volatility for the good and

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the bad and the high-octane fund is you know an allegory for gasoline on a fire [Man with gasoline tank by a fire]

01:10

it can really roast you nicely and warmly in the cold night or it can well [Fire creates explosion and man runs away]

01:16

do that so what do aggressive growth funds like these invest in you know go

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go aggressive let's go not just once but twice

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well they invest in typically risky volatile stocks a whole lot of

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technology stocks that are unproven small tech companies are regular

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favorite of this class is this little company the next Amazon in 20 years or [Woman sat at a computer desk]

01:36

is it Pieceocrap.com well over long periods of time and

01:40

inside of bull market era like decades where the market generally goes

01:44

up like it has been since 2009 while aggressive growth funds might compound

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at 11 12 13 14 15% something like that whereas a bit more conservative

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just growth funds might only compound at 8 9 or 10% but those two

01:58

percentage points of compounding actually matter a lot over the long-run

02:02

remember that rule of 72 well take the compound interest and divide it into 72 [Rule of 72 on a 100 dollar bill]

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and that's how long it takes to double well it applies here as well the

02:10

aggressive, in aggressive growth fund should in theory anyway add two percent

02:15

in returns or reward in good times thanks in large part to the added risk

02:19

taken in that category so 36 years pass and that aggressive growth fund all else

02:25

being equal should be double of what a normal growth fund should be but with a [Aggressive and Growth funds marked on a graph]

02:29

whole lot more volatility see that 2% divided into our little rule of 72 thing

02:34

there well that's 36 years to double with that extra 2% so if you can handle

02:39

the volatile, violent, flame field rocky mountain style peaks and volatility [Lava spews out of volcano]

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valleys of depression canyon and kill me now cave well then you'll love the view

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from Everest Lookout and punitive taxes peak if you're an investor like the

02:56

wealthy and aggressive go go high octane funds yeah go go for it [Woman skiing on mountain and falls off the edge]

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Finance: What is a Bubble?
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What is a Bubble? In markets and economic cycles, any kind of rapid run up trend characterized by over exuberance and emotion over fundamentals tha...

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