What is an Equity Boom?

Share markets are dynamic. They can also become quite volatile, and swing like the ‘Pendulum’ from extreme optimism to unjustified pessimism.

Market Is A Pendulum

When the market is in the midst of an enthusiastic advance, it is called an ‘Bull Run’ or ‘Equity Boom’. During such a phase the share prices soar and the ‘Price to Earnings Multiples’ are unjustifiably high. The market will witness a whole lot of Initial Public Offerings (IPOs) from a few good companies and also from a large number of worthless corporations. Many lay investors enter the market at very high valuations and get trapped.

In short, an equity boom is a bubble about to burst. It will eventually bust.

The intelligent value investor who not only knows knows which stocks are good but also their intrinsic values, may sell a portion of shares bought and accumulated over time at low and throw away prices at a handsome profit.

The ‘Intelligent Investor’ thus is happy both during an ‘Equity Boom’ as well as ‘Bust’ and invariably takes advantage of the juicy opportunities thrown up by the market at regular intervals.

Market Is A Pendulum

The stock market is dynamic and prices of shares fluctuate constantly. Thus is normal for any large and open market. It also constantly swings like pendulum between extreme optimism and pessimism.

Stock Market Is A Pendulum

Many lay investors, not groomed in value investing, and driven by uncontrolled emotions of greed and fear; enter the market when it is unjustifiably high. No wonder soon the market crashes. The same investors are now gripped with panic and sell the shares which they had bought at high valuations some time back sell at a steep loss, fearing further fall in prices.

 An intelligent investor on the other hand, knowing the true, intrinsic value of the shares is perfectly at peace during the market turbulences. He capitalizes on the opportunities thrown up by the market.  He purchases when the market is in extreme pessimism and sells when it is in extreme optimism.

The seller from whim the intelligent investor buys and the buyer to whom the wise value investor sells may be the same person, at two different points of time.