Melt Down period. Between 1929 and 1932, prices plummeted approximately 90%. Nevertheless, this percentage does not precisely show what the fall was. Negative percentages are misleading. In order to understand what happened, it is best to express it in absolute numbers. Thus, we can say that prices lost nine times their value, falling from 380, in the year …show more content…
Stock prices are rising rapidly and, probably, they will continue to do so until they reach their peak. At some point in time the bubble will burst, pushing prices to the opposite extreme, to a level well below their average, and then gradually begin to rise to return to normalcy and complete the cycle. Remember that the law of averages is always followed. Eventually, prices will look for their average growth.
Current market scenarios
The following chart shows the current market situation expressed regarding S&P 500, the index that best represents the US stock market. Compare this chart with the previous ones and figure out for yourself where that chart can move. Do you believe it can go on forever and ever to infinity? According to the author's information, the U. S. stock market is going through one of the best times of all time, very similar to that of 1921-1929. It is likely to continue to grow for some time to come, but then it will collapse, and the fall may be dramatic.
It is time to put the parachute on. Do not let the crash catch you off …show more content…
If prices fall by between 15% and 20%, then a downward trend (bear market) have started. They are not as frequent as the previous ones, but they occur periodically.
A fall up to 15% should not cause any worry because it is part of the game and therefore long-term investors simply should accept it as part of the investment process. Such declines are usually corrected within a few months by the market.
However, large falls do not recover as quickly. We saw in previous chapters how the 1929 crisis led to a market crash that took 25 years to recover. We also saw the example of the Japanese market, which has not recovered after 30 years.
Investors must avoid major falls in their portfolios at all costs, because they are major disasters that are difficult to recover. No one should assume these kinds of events with money in their pocket. Therefore, they must take preventive actions by acquiring an insurance policy. If you are unwilling to do so, it is better to stay out of the stock market.
The recommendation is