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Bubble Trouble: How Should Investors Respond?

1 week ago 303 views

Looking at the current market and worrying about bubbles seems misplaced? But certain assets like cryptocurrencies and technology stock always remains in the bubble territory, according to Rob Arnott, high-profile money manager. Rob suggests that investors should always be ready with a plan of action to deal with the bubble burst. Though in today’s time of market correction it seems unlikely, it is better to know how to deal with the bubble whenever the need arises. Should you ignore it? Bet against it? Invest in the antitheses?

The Ignore Policy

Many high-profile investors believe that Tesla stock is worthless when in fact it is the most shorted stock in the US. Arnott claims that the largest stock which mostly comprises of technology stock always remain in the bubble territory. It is generally argued that most stocks are highly valued in the US market. But Arnott cautions that these high valued stocks don’t remain consistent and plummet sooner or later. Within a decade, they underperform. And so, it is better to vary of popular stocks.

Betting Against

Betting against the bubbling stocks is the most reasonable option. History supports that the investors who bet against technology stock in 2000 and against the bank in 2008 profited substantially. Getting the timing right is most important when it comes to stock market. To get out in time, investors need to eliminate their exposure to the bubbles.

The Antitheses

During a bubble burst, the survivor stocks represent one thing – less competition and higher margin. To save themselves from bubble burst, the investors can diversify into non-bubbly territories. There are other cheaper alternatives, developing markets and emerging stocks where the investors can concentrate. Diversifying will make sure that when the inevitable downturn hits, the investors’ money is saved. It can save you from losing a fortune. Many other markets offer a safe place to risk. According to Arnott, investors should seek them out.