The reason why I picked this particular finance documentary
is because I believe that not much people would be taking it because history is
boring, isn’t it? Especially something that happened about a century ago.
However, if we look at this with a different angle, something that happened in
the past is actually beneficial for us as a guidance.
As mentioned in the documentary, the so called “investors”
were speculating on the stocks market, even the celebrities. In fact, they were
making decent profits for their speculation. This can be explained by when the
stock market is on a bull trend, the confidence of all investors is very high
and results in pushing the share prices to go up. However, the speculators on
stocks would be wiped out immediately during a bear market as the confidence is
relatively low hence there is no buying power and causes the shares to decline
drastically. This can be link to the current situation of stocks market where
there are so many uncertainties over the economics and political issues such as
the Brexit, US and China trade war, fluctuations in oil price and etc. When
there are uncertainties over the financial world, the confidence of investors
is rather low thus they would move their capital to the “safe zone” such as the
gold commodity. Therefore, it would lead to a fall in equity market and it can
be seen in the Dow Jones index, which has dropped for almost 20% from its
highest point recently.
One thing that I have to mention from the documentary is that
investing with margin is a double-edged knife. It could benefit you by
leveraging your capital and profits but it could also be a very dangerous tool
as your losses would be “leveraged” as well. In the 1920’s, investors can just
leverage their investment with margin for a ten-fold where $6,000 of capital
can purchase shares up to $60,000. This is very crazy and dangerous especially
for speculators who doesn’t even concern what were they buying, they have no
idea what are the industry that the company is in, the business and whatsoever.
They would just invest their money in whatever seems right and ignore any other
matters. Without a question, they could still generate decent profit during the
bull market, but let’s imagine that when the bear market is in control, the
outcome is obvious that the bankruptcies were just occurs everywhere which has
happened in the great crash of year 1929.
Consequently, the overly speculations had caused a gigantic
bubble on the stocks market but the investors were just ignored the fact and
chose to continue the party. For my understandings, the share prices were far
beyond its intrinsic value and it could be corrected at any time, before the
investors could even realize. The profits that they enjoyed during the bull
market was so high, it reaches the point that they would just simply neglect
the risk behind it and causing a tragedy to happen. This is very similar to the
financial crisis took place in year 2008, everyone is just celebrating for the
large profits and blindfolded for the bubble caused by over leveraging.
In short, we must learn from the past and avoid the mistakes
that made by ancestors. I am certain that there will be another, and another
financial crisis happens in the future, just like the one in year 2008 because
the tragedy in history is easily forget by humans, especially when there is
another bubble rising up. The only thing that we can do is to take precaution
step to minimize our losses and always perceive risk at the first place.
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