On... The Covid-19 Crash
Recently the global markets crashed, with the ASX200 index dropping about 30% in less than a month. What was the reason that sparked this crash?
Most commentators blamed this on the COVID-19 pandemic as the catalyst, made worse with the oil price war between Saudi and Russia (which sent Brent price tumbling as low as 25$/bbl). If you ask my opinion, my answer is "I don't know ".COVID-19 seems like the highest probable cause but to be fair, news of the virus was not new and had been circulating in the news since January, yet the market still went on to reach All Time Highs.
The only thing I know is that there are more sellers than buyers. To pinpoint why the market sold off, you probably need to go to Game Theory (my favorite one being The Prisoners Dilemma). In theory, regardless of the underlying reasons, IF stock holders decide not to sell at a lower price, the stock price will not go down.
Imagine the following scenario happening in an alternate universe. Company A has stocks that is owned by three persons. A pandemic hits, followed by an oil price war; but all three owners made a pact not to sell (and they honor the pact), the stock price will therefore still remain the same. So, how do we avoid a COVID-19 crash? Convince every stockholders in the world not to sell!
Of course, we don't live in an alternate universe and you can't convince everyone not to sell their stocks. Heck, you can't even convince people not to panic buy toilet paper (In my opinion, some people panic bought toilet paper just because everyone else is buying).
I think it's too complicated to know why the market crashed since there are too many players in this game and everyone has their reasons for selling. And just as the reason for the crash is largely unknown; in my opinion, the reason for the following rebound will also be largely unknown.
Most commentators blamed this on the COVID-19 pandemic as the catalyst, made worse with the oil price war between Saudi and Russia (which sent Brent price tumbling as low as 25$/bbl). If you ask my opinion, my answer is "I don't know ".COVID-19 seems like the highest probable cause but to be fair, news of the virus was not new and had been circulating in the news since January, yet the market still went on to reach All Time Highs.
The only thing I know is that there are more sellers than buyers. To pinpoint why the market sold off, you probably need to go to Game Theory (my favorite one being The Prisoners Dilemma). In theory, regardless of the underlying reasons, IF stock holders decide not to sell at a lower price, the stock price will not go down.
Imagine the following scenario happening in an alternate universe. Company A has stocks that is owned by three persons. A pandemic hits, followed by an oil price war; but all three owners made a pact not to sell (and they honor the pact), the stock price will therefore still remain the same. So, how do we avoid a COVID-19 crash? Convince every stockholders in the world not to sell!
Of course, we don't live in an alternate universe and you can't convince everyone not to sell their stocks. Heck, you can't even convince people not to panic buy toilet paper (In my opinion, some people panic bought toilet paper just because everyone else is buying).
I think it's too complicated to know why the market crashed since there are too many players in this game and everyone has their reasons for selling. And just as the reason for the crash is largely unknown; in my opinion, the reason for the following rebound will also be largely unknown.
shorters gonna short, mate. There's also people who make money by shorting, using this opportunity to make the big bet
ReplyDeleteThe big short 2020. Coming soon?
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