When Cash is Pouring into the Market, Stocks Become Over-Priced

ist2_2665797_stairs.jpgToo much money in the Stock Market.

When there is too much money in the stock market, it can be a warning sign that things are about to change.

New money coming into the market could means investors who have been holding cash investments (CDs, bonds, and so on) are jumping into equities.

Individually, this may be a good decision, depending on where investors place their money.
Better Stock Return Unfortunately, what often happens is inexperienced investors watch a bull market run and want to get in on the better returns the stock market offers.

They may not choose their investments wisely and push the prices of hot stocks even higher. Because they are inexperienced, they buy stocks they hear about on television or from friends.

Rather than do their own research, money pours into the market and pushes up certain stocks beyond reasonable expectations.

If you have been a stock investor for at least 10 years, this scenario may sound like the tech bubble of the late 1990s.Stock Market Bubble. Huge amounts of cash poured into the market creating a demand for something to buy. During that period, it was any stock that had to do with the Internet.

Like any market where there are more buyers than sellers, prices shot up until professional investors began pulling their money out of the market and values crashed.

This doesn’t mean you should stay out of a market where there is lots of enthusiasm. However, be careful about what stocks you buy and even more careful about what you pay for them.

Don’t rely on the market to keep its enthusiasm forever.

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2 Responses

  1. Shane says:

    Canadian markets are booming because of the resources here which everybody is in dire need of right now.

    But I think a lot of markets are high right now as people are jumping in and pushing them up as they ride the current wave.

  2. Robin Bal says:

    Markets invariably start booming because of resources which are in need, this however leads to the markets getting overbought and hence overpriced.

    Some markets are getting pushed up right now and without naming any, some of them have huge potential.

    Take care and cheers.

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