Rigoberto Puentes is a Certified Financial Planner from the Florida State University (FSU). He is a former member (2014) of the Body of Knowledge of the Financial Planning Standard Board (FPSB), the entity with the mission of establishing Financial Planning as a Global Profession. He founded and chaired Personal Financial Planning at the University of Nueva Esparta in Caracas. Rigoberto has developed his career as Investment Adviser (series 65). He has more than 25 years of investment experience in the global markets. Nowadays, he dedicates to the Investment Advisement through his RIA firm Puentes Mayorga Advisers (PMAdvisers). A company registered before de Securities and Exchange Commission (SEC) under the CRC#: 292085. …show more content…
- Because the global economy is similar to a bubble; the real value of an asset (real estate, corporation, precious metals, etc.) is only the skin of the bubble, the rest is air that disappears when it explodes.
- How does the financial bubble inflate?
- People expectations insufflate air to financial bubbles since they give the assets higher value than they have.
-Who decides if the value of an asset is real or it is a bubble?
-The market, the people who want to obtain benefits of that asset. While there are people available to buy it without a clear understanding of the outstanding growth, prices continue up and up until the market becomes a bursting bubble. In the end, all of the bubbles burst.
“An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is traded in an asset at a price or price range that strongly exceeds the asset's intrinsic value.”
“A market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset. Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the …show more content…
The above definitions help us to understand the concept of a financial bubble. No one can accurately determine when the price of an asset becomes a bubble. It depends on opinions based on expectations. As long as demand for a product remains higher than supply, the price will continue to rise. As long as there are buyers who consider that they can sell it at a higher value for a profit, the price will continue to increase. However, prices cannot grow indefinitely. At one point in time, the opinion of most buyers change, and they conclude that prices will not rise further. Therefore, they begin to sell urgently, creating a massive offer that collapses the market.
The bubble inflates little by little; it takes some time while the prices fluctuate, but they continuously increase to the top; then, suddenly, they fall, lowering prices even below its real value. They resemble a balloon that is slowly inflated, but when it explodes, it does so unexpectedly.
- Enough! I believe now we have a good idea on the subject.
- How do bubbles