Was going through my Instagram feed today in the morning right as I got up from the bed, after a few scrolls started noticing the posts from pages related to the finance world. All saying the same thing in different ways like – the current markets are overvalued. Not the right time to invest in the market. Everyone asking one question – why the hell are these stock prices going up so rapidly despite one of the most disastrous global events most people have witnessed in their entire life times.
I’ve seen people evaluating this and connecting this to the optimism in the market, some are even calling it stupidity. But I think there’s definitely more to it. This is my take on the situation.
Data shows that at least 1.2 million new stock trading accounts were created during the lock down in India alone and I think the key answer lies there. Now as you get into the depth of the situation, there are 1.2 million more people trading in the markets which means there are more transactions being done and more people buying these shares. And most likely they are being bought for wealth creation – with a view of holding it for 5 years or at the least 2 years.
Stock prices are based on a complex algorithm with a simple formula – Stock prices rise if there are more buyers in the market and it falls when there are more sellers. The algorithm only understands this much. It sees that there is a massive rise in the demand with these additional new traders coming into the market. Not what the financials are or what the world is going through – it’s an algorithm after all and guess what- same is the case with crypto currencies!
The world is changing. With technology getting accessible and advanced, people today are more aware of the different ways wealth can be created. People are looking into the future and analyzing where the world is heading and if all asset valuation are driven by demand, there could be fluctuations in the prices but I don’t see it falling below a certain point!