Hey Jessinvestors
Bull markets are something of a frenzy; the logic goes out the window, and momentum and confidence are at an all-time high. Investors start to pile in and place bets in just about any project or company they can find as the entire market continues to the run-up in price.
In a bull market everyone is seen as a genius, I would know, I was there myself in 2017, in fact, if you bought into a coin. It went down during those few weeks; months you were the anomaly, everything was a 45-degree angle to the right during those periods, making money wasn't an option it was the norm, for those with early positions.
Bull markets are super exciting, and it's easy to get wrapped up in the idea of quick gains and wealth without work, but there's a reason why these cycles are beautiful but brief.
Bull markets quickly overcapitalise projects
As money comes piling into projects and companies, they quickly become overcapitalised; they cannot produce value matching to their valuations. You can see that with the stock market, with momentum stocks beating out value stocks, no one cares about dividends or PE ratios and if stocks are grossly overvalued. They only care that the price is going up, so they're making more money and selling into the demand.
When projects become overcapitalised, they sink under the pressure of the capital; they're now thought to do something big with that funding. They need to produce results, and when they don't and more often than not, they don't, they then destroy investor confidence and can quickly be sold off in an over-correction that kills the projects with them having no working capital left to continue.
Product market fit is important, and if you're dumping Billions into a market that only makes millions. It hardly makes sense, but then again when did money and investing ever make sense...When it's run by humans.
Bull markets misallocate resources
In a bull market fundamentals are normally thrown out the window and its all about price, during these times the chase for earnings starts to allocate capital to projects and businesses that don't actually need them. Prices are bid up to be sold at a profit instead of being bid up by the performance of the project or company.
This not only wastes money but also pulls away capital from other investment opportunities that are more sustainable and can provide healthy returns. Misallocation of capital eventually starts to see companies cannibalise one another and we drive monopolies too.
The longer a bull market continues, the more fraudulent it becomes
As the flow of money comes in, naturally, people who don't act in the interest of the investor will be thinking about ways to tap into this easy money.
We saw this in the ICO boom of 2017, and we see it now with the stock market, being on a 20-year bull run, maybe even longer. We're starting to see the rampant fraud unravel and these are only the ones we know of or have outted so far.
The more capital dumped into the market; the more fraudsters will try to tap into this flow of cash and filter them into their pockets. The longer it goes on without being called out, the bigger the frauds are allowed to become, and then we see Enrons and the Worldcom's of the world explode in front of our very eyes spectacularly.
Bull runs are fun, but they come with their pitfalls you may or may not be ready for, so don't get caught up in the mania and stick to your fundamentals, even if it does cost you a few pennies to play it safe. Unrealised gains aren't real gains!
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What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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