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Written by José D. Roncal
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Friday, 15 April 2011 18:34 |
There’s been a lot of grieving lately over the slumping economy, lost jobs, lost homes, fuel prices, food prices, and the list goes on. We’ve all heard about the five stages of grief: denial, anger, bargaining, depression, and finally acceptance. But did you know there were six stages of a bubble?
You know what we mean by bubble, right? Think the tech bubble, the housing bubble, and so on. These are the periodic occurrences in the world of finance that usually end up catapulting unfortunate so-called “investors” directly into the five stages of grief.
According to Didier Sornette, a physicist who studies finance at the Swiss Federal Institute of Technology Zurich, there are six stages of bubbles: 1) the appearance of a new investment opportunity; 2) the expansion of credit; 3) euphoria; 4) distress; 5) revulsion; 6) and last, but not least, sheer panic.
Sound familiar? In our bookThe Big Gamble: Are You Investing or Speculating?, we wrote about the history of bubbles; those seemingly attractive investment opportunities that get everyone all worked up into a state of euphoria, right before the big bursting and the inevitable panic as it all comes crashing down.
There isn’t a lot of broad consensus on whether any actual bubbles are in the making today, or if there are any, whether they’re good or bad. Some say there are bubbles forming all over the place, from gold to farmland, while some note that the issuance of global junk bonds hitting an all time high in the first quarter of the year is a clear indication of a bubble.
Those that point to an upsurge in bankruptcies and recent financial bailouts are sending out warnings that somebody needs to let the air out of today’s bubbles now before they get any bigger. Many blame the Fed for keeping interest rates too low, but the Fed wants to keep them low until the economy is more stable.
Then there are those in the neutral-bubble corner, like Prof. Jaume Ventura, Senior Researcher at The Centre de Recerca en Economia Internacional in Barcelona, Spain. He just received a grant of one million euros from the European Research Council for his project, “Asset Bubbles and Economic Policy,” in which he attempts to develop a new view of asset bubbles.
Ventura argues that bubbles are not a source of market failure in and of themselves, but rather are a result of a pre-existing market weaknesses and financial imperfections. So his plan is to develop a method for addressing the relationship between bubbles and financial markets, economic growth, and unemployment, and then create the tools that would help policy makers sustain those bubbles that have a positive impact on economies and deflate those that have negative effects.
But how does one distinguish between the good bubbles and the bad ones? After all, bubbles are not all alike. The good ones can create assets that survive crashes, the bad ones don’t. And what about those people who don’t even recognize bubbles in their formative stages? What are they to do?
For those folks, we have some good advice. Pick up a copy of our bookThe Big Gamble: Are You Investing or Speculating? You will learn all about how to spot a bubble in the making so you can either avoid them, or strategize a way to profit from them. Either way, you could spare yourself a lot of grief! |
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Written by José D. Roncal
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Friday, 01 April 2011 15:51 |
When we wrote our book,The Big Gamble: Are You Investing or Speculating?, we wanted our readers to understand the difference between investing and speculating. We emphasized the point that there really is no such thing as an investment. Since there are no guarantees, all you are doing is speculating, and hoping that you don’t lose it all.
The words “speculate” and “speculator” are commonly associated with other words like “risk” and “uncertainty,” or in the most extreme cases, “greed” and “dishonesty.” But it’s rare that the word “inspire” comes to mind.
The Get Motivated Great Britain 2011 event might be changing that. The event is a one-day seminar aimed at firing up a new generation of entrepreneurs; the individuals considered to be a crucial part of economic recovery.
The event coordinators commissioned a study of 2,000 adults to find out who they believed to be the most inspirational person in the UK, whether a business leader, a politician, an athlete, or a celebrity.
In our book we paid tribute to some of the most famous risk-taking speculators of modern-day—including Sir Richard Branson—because it’s been proven time and again that speculators play an important role in keeping the economy moving.
Well, guess what? Branson topped the event’s poll of the UK’s most inspiring Brits—even beating out J.K. Rowling of Harry Potter fame. That’s saying a lot!
As the UK’s most successful entrepreneur, Branson is still recognized as their most inspirational business leader. His win was based on his business success, as well as for being a good role model. Imagine that. A speculator as a good role model!
Branson is quoted as saying, “Recession? Get over it, and start making more of new opportunities. Now is the time for young, enthusiastic and nimble companies to set up and thrive.”
That’s exactly the message we conveyed in our book when we described how during the recession of the 1970s, Branson applied his true grit spirit and expanded one of his earliest companies, Virgin Records. Then in the early 1990s he called for an expansion of Virgin Atlantic, even as more established rival airlines were struggling to recover from the recession and the Gulf War.
We agree with Branson’s observation that a healthy economy is built on a dynamic entrepreneurial culture, one that encourages new business and recognizes the importance of start-ups and small firms. New opportunities exist today in manufacturing, leisure, recruitment, renewable energy and even space. But Branson also warns that entrepreneurs need to take responsibility and keep driving their businesses forward rather than to blame banks and red tape for any lack of success.
When speaking to groups he likes to tell of the experience that nearly brought down Virgin Atlantic. He arrived home Friday evening after the inaugural flight and found his key creditor waiting with bad news. The bank would not be able to extend his overdraft to help finance the new airline. That would have meant no credit, no fuel, no food, no confidence, no passengers, and soon, no airline.
But Branson leapt into action and by Monday morning had managed to pull everything back together. You can read all about his story beginning on page 130 ofThe Big Gamble: Are You Investing or Speculating?. |
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