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Today we are going to learn about the 5 signs of the next stock market crash
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Number one.
Mergers and acquisition.
Companies can either grow slowly
by customer acquisition or fast by
mergers between
companies with the access to cheap debt
at a close to zero interest rate
companies often choose to expand their
business by the means of mergers
and acquisition of their competitors,
this is a concern when big companies
start buying up unrelated companies.
Imagine Mcdonald's who sell fries and
burgers
start selling smartphones and cars. How
weird is that?
These companies often swallow up too
much too soon
They use up a massive amount of cash
from their cash reserve
a dangerous situation where it is a gamble of the future of the company.
Time is required for a company to
generate a revenue
and gain cash flow. But by depleting
their cash reserve
companies are vulnerable. These companies can fall
and end up in bankruptcy form failed
mergers
and acquisition. Furthermore, the huge
amount of debt together with the
increase of interest rate
may also cause the company to be in
financial troubles.
As the company is unable to meet its
debt obligations due to the lack of cash flow
these companies are forced to close down.
And the key takeaway. Mergers and
acquisition of
unrelated companies are often
a sign of greed and the increase of
risk in the stock market. Warren
Buffett
said the best risks come from not
knowing
what you are doing
Number two. Rapid rise.
Is it safe to assume you will earn from
the stock
if the price of the stock market keep
rising?
Does it mean you should buy it right now
and not lose out from its potential gain?
Well... not exactly, some traders
buy using the rising trend they use
complex technical analysis
to predict the future. Some succeed,
but many don't. As a retail investor
more often than not when the news of the
stock
finally, reach you. The price of the stock
is either overvalued
or at a premium price.
This is especially true when the stock
market rises rapidly in just a few days.
A rapid rise in the price of the stock
or the financial asset
can be a warning sign of a sharp
downturn in the near future. We have seen numerous
stock market bubbles
including; the real estate bubbles and
tech
bubbles formed after the rapid rise of the
price of the stock.
The problem with the bubble is that they
give rise to panic selling
and thus ultimately leading to the
market crash.
With a prolonged period of recession
fear of losing out and the greed are the
downfall of many
retail investors.
When there is too much greed in the stock
market it can be a sign
that the next stock market crash is
coming.
The legendary investor Warren Buffett
says:
"we simply attempt to be fearful when
others are greedy,
and be greedy only when the others are
fearful."
Number Three. Margin Debt
Do you agree that humans are greedy?
when investors want to invest more money than what they have
had in their bank. What do they do?
Yep! When investors want to
make more money in a short time,
they borrow to invest. More often than
not
these are the short-term investors who
sees
a huge raise in the stock market and
don't want to miss the boat.
The lucky ones may succeed, while many
don't. When you see many investors
take on a high degree of margin debt,
this is a huge red flag,
it shows the marketplace is filled with
greed.
The high level of greed will signal
danger
and a possible sign of the market crash.
It can be form the US Stock Market
or the Chinese Stock Market, it doesn't
matter.
As the big boys, the fund managers
start selling, the markets start to sink
and everyone panic trying to exit.
This will crush the stock market even
more.
Number Four. IPO
IPO stands for initial public offering
a type of public offerings in the stock
exchange
where shares of companies are sold to
different investors.
An IPO helps the medium and big business
to get their financial muscle to grow
the company
With the help of millions of
shareholders
whom share the vision of the future of
company
An IPO will move the company into the
next level of growth.
IPO is nice and rosy until every
tom dick and harry start to apply and
get approval
for the IPO. One good example
is during the dot-com bubble where
hundreds of tech companies
are listed for IPO. Companies
with no solid balance sheet or income
statements
are approved for IPO listing.
In the year 2000, the bubble burst
and the market crash, the dot-com bubble
have brought down millions of investors
including
hundreds of tech companies. A surge in
the number of IPOs
in any given market cycle may indicate
a bubble, a clear warning sign
that the stock market is going down.
Number Five. Issue Debt
When major multinational companies like
the FANG
Facebook Apple Netflix or Google start
issuing debts for stock buyback, this
can be a potential trigger of the stock
market crash.
A stock buyback scheme is usually good
for shareholders
but when debt is required to issue to
perform a buyback
things can get nasty. As all 
borrow money
comes with a certain amount of
interest
They have to be paid back to those it
loan from.
A major share buyback scheme with cash raised from the issued debt,
can be a dangerous game. A possible
sign of a crush. It reduced company's
cash reserve
and its ability to tackle any adversity
that the company may meet in the future.
If a company's cash flow is affected
it can affect its operation and
eventually
its revenue. It will bring the company
into a very dangerous
territory for not meeting its debt
obligations
the collapse of one such companies will
be a trigger
of a market crash. An example of such a
collapse
is the collapse of Lehman brothers
and it triggers the financial crisis of
2008.
Debt can be a double-edged sword that
will wound you
in the process. Debt is the match
that lights the fire of every crisis
every crisis has its own set of villains
but all require one similar ingredient 
to create a true
crisis. And that is too much
leverage. Before we go to the Bonus
content
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is on the way. We are curious to know
are you surprised by any of these signs
of the stock market crash?
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below
and here it's your Bonus!
Is your neighbor next door your barber
or even your cats
are giving you expert advice on which
stock to pick so you won't miss out? Fear and greed
are the cause of most stock market crash.
These are the nature of humans. Greed
drive the market price to rise to an
unsustainable
level and fear drive the market down to
an unimaginable
level. When everyone around you start
talking about
how to invest and what to invest. Be
wary. Because this can be a sign
that the market is overpriced and a sign
that the next stock market crash is
coming.
If you learn something valuable from
here please write,
"Fear and Greed" in the comments below
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sign of the market crash
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