Before Covid-19 hit the financial market and caused one of the most significant economic crunches of our times, there were others. From the Great Depression and Black Monday to the global financial crisis of 2007 through 2008. Still, the market recovered through it all.
This begs the question, should you invest during a stock market bubble burst? There is no right answer to this question. But knowing how to try investing demo with Naga can help prepare you for the next bubble.
Can we predict bubbles?
Unfortunately, no one can predict a market bubble. However, the below credit cycle stages are the telltales one can look for:
- Displacement – a new paradigm in the market happens and becomes a fixation for investors. For instance, the introduction of innovative technology, adoption of internet use, and low-interest rates that paved the way for the flow of capital to startups led to the internet bubble, famously referred to as the dot-com bubble.
- Boom – as displacement happens, prices start to increase slowly but gain momentum as more investors begin to enter the market. Naturally, this attracts more attention, especially from the media leading to an increase in interested investors due to the fear of missing out.
- Euphoria – as prices skyrocket and more investors join to get a piece of the cake, valuations are made to justify the rising stock prices. Still, there is the notion that high prices are here to stay.
- Profit-taking – investment pros and ‘smart money’ insiders heed the warnings of a collapse. They begin to get out of the market and take their profits. Soon, insider selling starts to accelerate, leading to the final stage.
- Panic – is the final stage in the credit cycle, where supply overrides demand and prices drop as fast as they increase during euphoria.
Should I invest in stocks while the stock market bubble bursts?
It is common for most investors to sell during a stock market bubble. As prices reduce and stocks lose value, many investors want to cut their losses and cash in while they still can. However, it is also possible for one to invest during this period. The truth is, the market always recovers. It is not hard to see some individuals invest aggressively during this period. The prices are at a record high, and when they hold them till the market recovers, their stocks will have gained value.
That said, investing during a stock market bubble requires strategic planning. No one knows how long the market will take to recover. Or the companies that will survive such an ordeal. Therefore, a strategic investment plan is necessary when investing during a bubble burst. It ensures you are buying stocks that match your overall investment goals.
How is trying to invest in a demo in Naga help with the trend?
Understanding how the market works can help you know when a market bubble is looming. This includes knowing how to read and interpret financial market data and charts. Naga’s demo account provides free access to a trading platform you can use to learn how to trade in stocks. Trying to invest in a demo in Naga will help you gain skills in stock trading, which can come in handy during a market downturn.
When will the next big crash happen?
It is impossible to say when the next big crash will happen. Stock market bubbles are usually sudden. While the above credit cycle stages are good pointers of a looming bubble, you cannot tell when the bubble will finally pop.
Should I start investing now, or wait until after the market has recovered?
Every financial advisor will always recommend investing now rather than later, regardless of the market position. This allows your money to continue growing if you hold it for the long-term compared to holding it in cash. Still, investing when the market is down might not be a great strategy in some situations.
Since it is hard to predict when the market will recover, it is advisable not to invest if you will require the capital in the next few months. In such cases, it is best to build an emergency fund first as you wait for the market to recover.
What stocks will be up next year?
Stocks market is quite volatile and unpredictable. This makes it nearly impossible to tell what stocks will be up next year. Still, you can predict what stocks might increase in value in the future by:
Identifying trends – a trend that is picking momentum is a sign of growth in that market. For example, E-commerce and remote working have picked up in the past few years, and the trend keeps increasing. This is a great indicator of growth in this sector, with companies like Amazon still growing.
Identify companies with a strong competitive advantage – just because the sector is growing doesn’t mean every company will survive. However, some companies have a stronger competitive advantage over their peers, making them the best investment option.
Choose a company with a sizable market – you also need to look at the company’s market share. The greater the market share, the greater its survival chances during a turmoil.
Conclusion
The bottom line is there is no right time to start investing, even during a stock market bubble. In fact, this could be the best time to invest due to lower stock prices. Naga’s demo account can help you understand how the market works when the bubble works. This ensures you are ready to take advantage of market conditions to increase your investment and manage your risks.
