WHAT A STOCK MARKET CRASH LOOKS LIKE 🔥 #Best Education Page #Online Earning

so what does a stock market crash

actually look like that is what we are

going to be discussing in today's video

I want to start off by sharing a quote

from John Templeton it is very valuable

in understanding what actually causes a

stock market crash he says that bull

markets are born on pessimism grown on

skepticism mature on optimism and die on

euphoria later on in this video we're

gonna go over the stages of a bull

market we're gonna draw it out on my

whiteboard but I want to plant that seed

in your head to get you to start

thinking about what happens when a bull

market actually comes to a close the

truth is everyone likes to talk about

the upside the market has the potential

gains the potential returns but very few

people like to actually talk about the

potential downside risk as well or what

happens when you make a bad investment

or invest in the market at a terrible

time stop I'm not telling you guys not

to invest in the stock market all I'm

telling you to do is use common sense

honestly that's what it comes down to at

the end of the day common sense will

keep you out of trouble

when you invest in the stock market so

I've been getting a lot of emails from

people lately asking about bear markets

asking about whether or not I think the

stock market is going to crash anytime

soon and one thing you'll learn once

you've been investing for a long time is

that timing the market is pretty much

impossible you might be right once in a

while but you're gonna be wrong a lot of

the time as well and so as far as when

the next market crash will occur your

guess is as good as mine well bear

markets are a very normal thing they're

a very healthy part of the market and

it's something we have to deal with once

in a while and there are countless

examples of bear markets or market

crashes that have occurred in the past

we have tulip mania back in the 1600s

there was the Wall Street Crash of 1929

Black Monday in 1987 and in this video

we're gonna be talking about the dot-com

bubble that formed in the early 2000s we

had the financial crisis of 2008 and

most recently we have this

cryptocurrency sell-off that has

occurred so what do all of these market

crashes have in common what they have in

common is that a speculative bubble had

formed and a speculative bubble forms

when an asset is trading at a price that

highly exceeds the intrinsic or

underlying value so in this video we're

going to be using Yahoo as an example to

show you what it actually looks like

when a stock

trading in a speculative bubble and what

it means when a stock is trading at a

price that exceeds the intrinsic value

and I know I'm using a lot of

complicated financial lingo here but I

promise you we're gonna keep it very

simple using a lemonade stand as an

example but we are going to analyze the

dot-com bubble of the early 2000s to

better understand what causes a bubble

or a speculative bubble to form and what

a market crash actually looks like so

back in 1994 these two college students

decided to create a searchable index of

websites and later on this became Yahoo

now a few years later this company went

public and the general public like you

and I could invest in shares of Yahoo

stock now during the dot-com bubble the

stocks of technology companies and

primarily those involved with the

internet absolutely exploded in Yahoo

was no exception to that

now do keep in mind that the actual

value a company has is determined by the

market or what you or I would be willing

to pay for one share of that stock it's

all based on supply and demand or the

fear and greed the market has and when a

bubble is forming people are being very

greedy and the price keeps on climbing

so at one point in time at the peak of

the dot-com bubble Yahoo stock was

trading at an earnings multiple or price

to earnings ratio of over 1,000 now I

know that's a term you might not be

familiar with so we're gonna jump over

to my board here and do an example of

this looking at a lemonade stand as

promised earlier so let's go ahead and

assume this is you right here this is

your lemonade stand and you're selling

glasses of ice-cold lemonade for $1 and

it's a summer business and you're able

to make $1,000 of earnings every single

year that you operate this lemonade

stand but now you decided you're gonna

go off to college and you don't want to

be running a lemonade stand anymore so

you say I'm gonna sell the business so

let's say you have two offers on the

table for your lemonade stand okay we

know that the earnings potential from

this lemonade stand is 1,000 dollars per

year and all for number one is for ten

thousand dollars

so this investor is willing to pay

$10,000 for something that is earning

$1,000 per year and if that lemonade

stand continued to generate one thousand

dollars per year of earnings he would

have his investment back in just ten

years

that right there is a reasonable

investment that would be a PE or price

to earnings ratio of 10

now this is what happened with Yahoo

stock that would be like somebody coming

in and offering you 1 million dollars

for a lemonade stand generating 1000

dollars of earnings per year so it would

take you 1,000 years to get your money

back if that lemonade stand is

generating 1000 dollars per year that is

exactly what happened with Yahoo stock

people were paying 1000 times the

earnings potential of that company at

that point in time it is no different

than paying a million dollars for a

lemonade stand that's generating one

thousand dollars per year of earnings

now yes Yahoo is a technology company

and they were involved with a

cutting-edge service being offered so

it's a little bit different than

lemonade but the pricing example here is

no different so to answer the question

of what a stock market crash actually

looks like let's go ahead and talk about

what happened to Yahoo stock after this

speculative bubble burst so if you were

looking to buy shares of Yahoo stock

back on January 3rd of 2000 you would

have paid the all-time high for the

stock of 1 1875 per share and on

September 26th of 2001 Yahoo stock

bottomed out at four dollars and five

cents per share so if you were the

unfortunate soul who bought Yahoo stock

at the very top and then sold it at the

very bottom you would have sustained a

ninety six point six percent loss but

let's go ahead and put that into numbers

let's say you invested ten thousand

dollars in Yahoo stock at the very peak

and sold at the bottom you would have

$340 left of that $10,000 that right

there is what a stock market crash can

look like it can be very painful it can

be a 90 plus percent loss but I want to

bring it back to that lemonade stand

example these were people willing to pay

a million dollars for a lemonade stand

generating one thousand dollars per year

of earnings it just didn't make

financial sense and there was no way

that price was sustainable for any long

period of time and this right here is

what a bubble looks like it starts off

with enthusiasm on the left and then

this turns into pure greed we see the

first sell-off and then they enter a

stage of denial where they think they

are buying the dip but really there is

much more to lose at that point fear

sets in and that price falls in some

cases below where it even started when

despair sets in and after this point you

typically begin to see a healthy

appreciation

of that asset so now that we know what a

stock market crash looks like and what a

speculative bubble is I want to give you

guys five tips to avoid getting caught

up in such a situation as many people

did with Yahoo stock back in the early

2000s number one is very simple that is

to avoid following the herd if everyone

out there is buying a particular stock

or particular asset do not buy that

asset

it is likely trading on a speculative

basis or it will be very shortly and you

don't want to be involved in that my

second piece of advice to you is to

learn how to value a company by

conducting fundamental stock analysis

now that's more than I can teach you

guys in this video and I actually have a

full 10-part course on fundamental stock

analysis which is part of my membership

site stock radar and you might be

interested in checking that out if

you're looking to learn more about how

to value a company but by conducting

fundamental stock analysis and beginning

to understand the underlying value of an

asset or a stock you can determine

whether or not that stock is overvalued

fairly valued or undervalued and you

will avoid getting caught up in a trap

like people did with Yahoo stock and

then my third piece of advice is simply

to buy low I'm sure we've heard the

words of Warren Buffett before buy low

and sell high and people who are

investing in stocks or assets that are

trading in a speculative basis or

forming a bubble or buying assets at

all-time highs I would never recommend

buying a stock or any asset when it's

approaching or reaching an all-time high

as a value investor I buy low and I sell

high and I'm greedy when others are

fearful that is what you want to do to

be a successful investor number four is

very simple as well and it's a rule you

may want to follow and that is to only

invest in profitable companies if a

company is not turning a profit it is

probably not investment worthy and it's

likely trading on a speculative basis

and it's a stock you may wish to avoid

and then fifth and finally my last tip

for you is to remember the lemonade

stand example and think about whether or

not it makes sense to pay a million

dollars for a lemonade stand generating

one thousand dollars worth of earnings

and you can use that analogy anytime

you're looking at the p/e or price to

earnings ratio of a company anyways guys

that's going to wrap up this video thank

you so much for watching if you have a

friend or family member who might enjoy

this video as well please do not forget

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video if you enjoyed and I just want to

make sure this lesson really sunk in

with you as the viewer so make sure you

comment down below and in your own words

describe what a speculative bubble is

but thank you guys so much for watching

and I hope to see you in the next video

if you are interested in learning more

about investing in the stock market I've

created a free course just for you the

link is in the description below here

are a few other videos you might enjoy

as well

#Best Education Page #Online Earning

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