The bubble indicator is currently at 77%. In 2000 and 1929, when US markets experienced big problems caused by inflated stocks, this indicator was at 100%. This could mean that the stock market, or at least some stocks, is starting to be big bubble. Bubble means that a stock is traded for an unsustainably high price.
Why it matters
As you go through the stocks, you will find that there are huge differences between them. Some stocks are traded for extremely high prices, thus being already extreme bubbles, which you can tell by searching and measuring certain indicators. As for such stocks, you will find that it is mostly stocks of technological companies in development. About 5% of the top 1 000 companies in the US are a bubble. The number for the S&P 500 is smaller because some of these companies are not part of this index. Some of them are not having problems at all.
What is measured
In order to find out if the stock is a bubble, certain data need to be measured, such as: how high are the prices compared to traditional stocks and assets, how many new buyers are entering the market, how wide the bullish sentiment is; whether purchases are financed with a high leverage and whether buyers have made exceptionally extended forward purchases.
Each of these indicators is measured with the use of statistic data and these indicators are combined futher. On the stock market, this is calculated for each stock. These indicators are then combined into aggregated indices according to various criteria and then for the market as a whole.
What it could mean
If there are a lot of bubbles on the stock market, it can have big consequences. Each bubble, when it bursts, takes a piece of the financial market with it, and people who have invested in such stocks, will lose their money. That’s why it’s a good idea to monitor the market and follow the news so that you know what you invest in.
What you can do
Knowledge is the biggest weapon in the fight against such bubbles. In order not to lose your money, you need to invest in assets that you can be sure do not lose value. Among such assets could be for example gold, or digital currencies, such as our PlatonCoin. Contact us to learn more.