Bubbles have existed throughout our history. It is due to excessive valuation driven up by the big boys and then driven even higher by the individual investors. As of 5/2013, the market bubble is caused by the government interventions via money supply policy and subsidies. The first ones riding the wave make good money and the last ones buying at the peak will suffer most.
From our recent history, we have the 2000 internet bubble, and then the 2007 housing bubble. The chapter Spotting Big Market Plunges (Chapter 39) shows you how easy to detect the last two plunges. Read the chapter AGAIN and digest it. It would save you 40% of your portfolio in the next plunge.
As of 5/2013, the gold price has been down from its height of 1,850. It will remain in this range (1,200 – 1,900) until the USD appreciates and / or the global economies improve. The USD is doing quite well recently (actually at its highest level since 2008). It could be the other countries (EU and Japan) are doing worse than us and /or our shale energy is very promising – it will be clearer in two years whether it is a mirage.
The market will start a 10% or so correction to me or at least its bubble is forming fast. Investing in stocks today is quite risky. The bond bubble will burst when the interest rate rises. It will as the interest rate should be bottomed by now – it can’t go negative I guess. Farm products and the farm land have reached high price levels. The student loan is getting its status as a bubble soon.
Today all the mentioned bubbles could be caused by pumping too much money into the economy by the government (Chapter 38: A Non-Correlation of the Market and the Economy). However, we cannot keep on pumping the money and ask our children to pay our debts forever. When the music stops, the market will drop fast.
Unless you borrow my time machine (which is still in development), you cannot pin point when the bubble will burst. Your timing to act depends on your risk tolerance, your knowledge (a commodity trader can afford to take more risk on commodities for example) and your past experience and your greed that could give you false security.
For me, it is safer not to make the last buck as the reward / risk ratio is too low. A good sleep would improve your health and that is worth all the gold in the world.
My e-book Debunk the Myths of Investing could save you a lot of money in investing. The above is one chapter out of 105 and some important chapters will not be included in the blog.
Sample portfolio for the book.
(c) 2013 Tony Pow
Disclaimer. I'm not responsible for your actions in your investment. Treat this as educational information and past performance does not guarantee future performance.