"Trust me I never lose. I either win or learn. " -Unknown
There were other causes as well, of course, like absence of proper brokerage regulation guidelines, credit receivable guidelines etc. However this was one of the key causes. This consequently led to the skyrocketing of stock market prices, despite the shares' actual value not being that much.
Since the 1930s several laws and regulations have been put into place which safeguard the investors and their money to prevent events such as a recession. In spite of this an increase in price is bound to occur if the investors themselves are willing to pay more for a stock than it is actually worth.
Bitcoin is by no means the only example of this phenomenon. It is one of the many stocks out there which is currently priced more than its actual value. My reason for using bitcoin--or really any cryptocurrency, because the principle works on all of them-- is that it is by far the easiest to explain as well as to understand.
Bitcoin is decentralized. This means that there is no one central authority controlling it, hence it is distributed. The bit-coins themselves can be 'mined' by 'miners' anywhere as long as they follow the rules of the blockchain, or simply bought in return for real world money.
How the bitcoins are used is also not an issue, as long as it is not used in any illegal activity. It can used for tipping on your next visit to the restaurant, or to purchase something at a place which accepts bitcoin. You can also invest in bitcoin itself.
These are a few examples of what you can do with the cryptocurrency and others of its kind.
This is very similar to real world commodities like Gold, Silver and Copper. These commodities are also decentralized in that there is no one single authority that uses or distributes them.
Think about it. Gold, for example, can be 'mined' by anyone, anywhere and as long as they abide by the laws of the region the mine is located in, they can distribute that gold. That gold in turn can be used and distributed in any way, again as long as the proper laws are followed. They can be used to make bars, coins, jewels, in stocks and so much more. And the medium of exchange? Cash. Or rather money in one form or another.
In fact cash is something that is centralized. It is printed, distributed, returned, and destroyed.
So if bitcoin and other cryptocurrencies are so much like real-world commodities i.e. gold, silver and copper, with very much the same purpose, except that the former are virtual and the latter are physical, why is there so much difference in their prices?
The prices of gold and other commodities are high but they are not so high, and they remain relatively stable for the most part. Bitcoin and other cryptocurrencies which are supposed to perform the same function--that is become a medium of exchange on the internet-- have extremely volatile prices that change practically daily. Why is that?
As mentioned above, Bitcoin and other cryptocurrency stocks are not the only ones suffering from this problem. In the 1920s the stock prices soared because of high levels of investments in homes and autos. The difference today is that the investment sector is technology. Other than that, nothing much has actually changed.
Back then people also invested in a stock because it was in the news or someone else suggested it to them. This led people to take out credit in order to purchase stocks, which in actuality is not investment at all. These days we don't read the news.
Instead, we post on social media, "Hello everyone, what's the trending stock in X?", and are hammered with dozens of replies, if not more. We are then free to choose which stock we would like to invest in from the selection.
This is not the correct method and isn't very different from the method of the past.
Not only does the lack of research cause incorrect increase or decrease in the price of the stock, but your own money is put at risk which is evident when events like a recession inevitably occur. The point here is not to not invest your money.
Investment is an excellent way to utilize your savings. However investment should be done properly, with the right kind of research and knowledge. Try Wall Street Survivor. It is aimed at beginners, and helps you understand the importance of an investment strategy.
There are other resources as well, but I've personally found this one very useful. Also keep in mind, investment requires not only knowledge about yourself and what you are investing in, but extra funds to prepare for the possibility that you might lose. Even value investing, famously recommended by Warren Buffet, requires thought and significant amount of capital since the stocks you are investing in are already in-demand.
The 1920s investment spree ended after WWII because people realized that investment wasn't for everyone, and for all the newness of mechanization and the still astonishing aspects of the auto industry, they were now a part of everyday life and therefore had to be judged as such.
After 1950 there was a period of approximately 30 years in which there was progress, growth and stability. This was an almost global phenomenon, albeit to a more or less extent. In this period already existing technologies were innovated on and new technologies were invented. However all this was done with minimum disruption in the market.
From 1980 onward things changed. With the arrival of the internet and modern technology investors, both big and small, were willing to put their money into anything and everything related to technology. And it worked, for a while at least. It gave us forty years of some of the best products from some of the best companies we have today.
However as we know when stock prices rise too much, especially when the prices are higher than the stock's actual value, the market crashes. This is what happened from 1980 to the present day. What I mean is, while there was technological progress--a lot of it-- there were also market crashes, practically in every decade. There was the 1987 crash, the Dot.com bust, the 2008-09 recession and of course the present possibility of another recession, although we hope we can avoid that one.
In our pandemic and post-pandemic era chances are that we won't be facing a depression, local or global. However a recession is still possible. In order to minimize and possibly avoid one and lead our lives back to normal, we need to learn and understand a few things.
Like our predecessors who realized that in spite of the amazing possibilities of automation and mechanization houses were just that, houses and cars were a vehicle of transport. Likewise we need to learn this too.
Your EV/FCV/hybrid car is just that, a car which doesn't pollute or harm the environment. It may contain many other gadgets as well but chances are many of these gadgets are also present in your cellphone, laptop, iPad etc.
Your phone doesn't need to be replaced every year, anymore than your refrigerator, your TV or any of your other regular electronic devices, just because the manufacturer is releasing a newer model unless of course the phone has some useful features in it.
If your present phone has all the features you need and works perfectly fine at least up until the required period mentioned by manufacturer, then why not keep using it? Maybe you can even later invest that money in something. And if it doesn't, then you should switch your manufacturer. The list goes on.
In short, technology is still new in many ways and still improving every day. It is here to stay. And because it is here to stay, it needs to be looked at within its context and use. With that in mind my question is, which products would you buy, and more importantly which would you invest in considering technology is our 'New Normal'?
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