Market History
12 questions
What was actually being traded in the late phase?
Contracts for future delivery, where mostly nobody intended to really deliver.
Why was valuation so difficult?
Because it was a new good for which there was no familiar yardstick yet.
What does more recent research say about the scale?
The consequences for the economy were much smaller than the well known story claims.
What role did debt financing play?
Those who had put in little of their own money had to top up or were force sold when prices fell, and that amplified the crash.
Was the crash the sole cause of the Depression?
No. Tight money from the central bank, bank failures and tariffs played a major part.
Why do different recovery times circulate?
Because they depend on whether dividends and the falling prices of the 1930s are included.
Why were new valuation metrics introduced?
Because the familiar yardsticks showed the shares were too expensive. Needing new yardsticks is itself a warning sign.
What role did lockup periods play?
When the lock up periods ended, the first owners could sell, and extra shares came onto the market.
What's the central lesson?
Being right about a technology doesn't automatically earn you a good return.
Which five phases does the model describe?
A trigger, the boom, euphoria, first profit taking and panic.
What's the mechanical core of the reversal?
Those who bought on credit have to sell when prices fall, and those sales make prices fall further.
Which metric is more informative than the valuation level?
How much is being bought on credit relative to the total market value.