Bubbles Look Like This

gcFinancial experts often speak of bubbles in housing, gold, the stock market…….etc..

I wonder sometimes if people actually understand what a “bubble” in the financial world really means or what one looks like.

Bubble:   A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.  Investopida

This is what a bubble looks like:

Barry Ritholtz and Bloomberg last week drew attention to the fact that shares of The Grilled Cheese Truck Inc. had commenced trading on the OTCQX (Over the Counter or Penny Stocks) marketplace under the ticker GRLD:

“Let’s look at the fundamentals of the Ft. Lauderdale, Florida-based company. Based on the 18 million shares outstanding and a recent stock price of $6 the company has a market value of about $108 million.

No matter how much you like grilled cheese… I can’t see this as a reasonable valuation.

“If you go to the company’s website, you will learn that ‘The company currently operates and licenses grilled cheese food trucks in the Los Angeles, CA area and Phoenix, AZ and is expanding into additional markets with the goal of becoming the largest operator in the gourmet grilled cheese space.’

“[A]ccording to the company’s financial statements, it has about $1 million of assets and almost $3 million in liabilities. In the third quarter of 2014, it had sales of almost $1 million, on which it had a net loss of more than  $900,000.”

“I can’t think of a more interesting sign of the old irrational exuberance in equity markets than a publicly traded grilled cheese truck (four in this case) business trading at a $100-million-plus valuation. That sort of thing doesn’t happen unless there is significant excess in the markets.”

The greatest advice I have ever gotten whether in regards to my own business doing very well or the stock market out performing simple logic.

“Enjoy the party, but dance close to the door”

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