Understanding the stock market can be tricky if you are starting out. Prices rise and fall all the time – however, some do so more drastically than others. The real challenge is being able to spot when something is going to rise and eventually when it will fall.
Even the most experienced and shrewdest of investors cannot predict exactly how one stock or even an entire market will change, especially as so many things influence the prices. However, an experienced investor does know what to look out for and how to potentially save themselves from a lot of loss in the future. What’s more, it’s a great reason to sign up with a broker such as ROInvesting as it can make all the difference.
With that in mind, here are a few tips to help guide you through economic bubbles and how you can make clearer asset predictions.
Contents
Why do stock prices rise and drop drastically in value?
As you know, stock market prices are constantly fluctuating. That is why making investments, even well-researched ones, is always a gamble. Nearly anything can impact a stock market price, no matter the company. From public relations and media scandals to revamping a brand and new projects, assets are always at a mercy.
One of the biggest difficulties of being an investor is trying to plan ahead based on what you think a company will do, and most of all, how people will react. Nowadays, with news reaching the mass public so quickly, stock market prices can rise or plummet nearly instantaneously. One scandal can ruin a brand, just as one meeting or statement can save one.
The trick is to know what to look out for – but how can you better protect your asset choices with so much fluctuation in play?
How can you spot the potential rises and drops in stock market prices?
First of all, it is essential to note that when the price of a stock, asset, or even an entire market skyrockets quickly, you are looking at a bubble. This is so-called because once the novelty wears off and the market changes, the bubble pops. This means that the price will then quickly fall. An example of an economic bubble would be the housing crisis in the US back in 2008.
Sadly, it can be difficult to spot whether something is an economic bubble before it actually bursts. This is what leads many investors down a rabbit hole – which sadly, often leads to nowhere good.
One way of avoiding being in an economic bubble is by examining exactly why you are investing in something. Have you carefully considered what you are investing in? Does it have any significant importance to you? Have you weighed the supply and demand? Or have you simply jumped onto a bandwagon?
While some popular investments may prove to be very beneficial in the long term, it is never wise to invest in something simply because others are doing it. While it may seem that they are profiting greatly in the short term, they could find themselves losing it all even quicker unless there is truly something likely to build in value. Sudden spikes can, therefore, indicate that sudden dips are likely to follow. It’s all about when best to sell, therefore, if you ride these spikes.
To avoid bubbling, it is best to start analyzing the stock’s number. If the prices go far beyond what the estimated value is, then you might note a slight issue at hand. It would be wise to leave if you do feel unsettled by the current situation. However, it is essential to note that there is no telling when the bubble might burst.
It is also important to remember that some high prices in a market are not necessarily signs of a bubble emerging. However, if you do notice multiple investors leaving, and bizarre prices are emerging, then the chances are that you are watching the smart money get out ahead of the explosion to come.
If you’re concerned about a particular investment before jumping on the bandwagon, it could be worth making short-term investments – as opposed to long-term ones – to better protect yourself.
Conclusion
Unfortunately, there are no rules set in stone as far as asset and stock value predictions are concerned – it is all a bit of a guessing game. If you’re already trying to save money, then it makes sense to do as much research as you can before you start predicting.
That said, the best routes to take immediately are to side with a regulated, trusted broker – and to tread carefully. Rushing into an asset spike might give you an adrenalin rush, but it’s hardly something to build a portfolio around.
