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Finance: What is a Bubble? 5 Views

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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 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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