Market Crashes: What are Crashes and Bubbles?

From http://www.investopedia.com/


A bubble is a type of investing phenomenon that demonstrates the frailty of some facets of human emotion. A bubble occurs when investors put so much demand on a stock that they drive the price beyond any accurate or rational reflection of its actual worth, which should be determined by the performance of the underlying company. Like the soap bubbles a child likes to blow, investing bubbles often appear as though they will rise forever, but since they are not formed from anything substantial, they eventually pop. And when they do, the money that was invested into them dissipates into the wind.

A crash is a significant drop in the total value of a market, almost undoubtedly attributable to the popping of a bubble, creating a situation wherein the majority of investors are trying to flee the market at the same time and consequently incurring massive losses. Attempting to avoid more losses, investors during a crash are panic selling, hoping to unload their declining stocks onto other investors. This panic selling contributes to the declining market, which eventually crashes and affects everyone
 
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CreateWealth8888:

Asia is faced an asset bubble, due to speculation in real estates caused by low interest rate, due to stimulus spending by governments in many countries - NYTimes


With the current very low interest rate, many potential retail property investors ( defined as those are seriously net worth negative after taking on the housing loans as leverages) are thinking that investing in properties is the way to go for potential cash flow and future capital gains. How nice is to be a landlord?

Yes. While it is true that the fastest way to build up your wealth is through using the biggest leverages that you can find. But, retail property investors also have to be mindful that leverage is a double edged sword - it can also kill you faster than expected.
 
What made you think that the interest rate will remain low for a long time? Look at the historical Fed Rate, it could rise faster than expected and could keep rising for a long while.

http://createwealth8888.blogspot.com/search/label/Charts%20-%20Fed%20Rate

And if the interest rate is rising faster than expected, what will happen to the wonderful dreams of those retail property investors ( defined as those are seriously net worth negative after taking on the housing loans as leverages).

Do understand what is market crash - almost undoubtedly attributable to the popping of a bubble, creating a situation wherein the majority of investors are trying to flee the market at the same time and consequently incurring massive losses. Attempting to avoid more losses, investors during a crash are panic selling, hoping to unload their declining Properties onto other investors. This panic selling contributes to the declining market, which eventually crashes and affects everyone.

One thing about the leveraged properties, you may not need to sell it yourself, your friendly banker will force sell for you. Does it sound good?

"While we are free to choose our actions, we are not free to choose the consequences of our actions." - Stephen R. Covey