A lot of people are eager to invest but unfortunately, most people don’t have enough money to make
a good investment because if you invest your thousand dollars that you hardly saved, you
probably will lose it or make 3 or 4 percent a year which is not worth it.
So the question that recently crossed my mind was - what’s the best way to invest if you
don’t have a lot of money.
How do you spot great opportunities at the right time such as bitcoin? if you have invested
that thousand dollars in bitcoin just a year before it was crashed, you would have made
at least a thousand percent on your investment.
But bitcoin is just the most recent example, people have been making millions if not billions
by taking advantage of such opportunities all the time, Such as the 2008 crash.
So, How do you find a million or a billion dollar opportunity?
That's the question we will answer in this video.
But first, we have to understand how the economy works.
Look, our economy is very predictable.
It grows slowly, then skyrockets and once it reaches its peak, it suddenly crashes.
And then It starts recovering and growing again and the same cycle repeats over and
over but in general, the trend is upward.
And your job is to invest here at the bottom and cash out at the top.
But how do you know where exactly are we now.
Let's understand that by taking an example of the 2008 crash.
In the 2000s, when the stock market crashed, investors didn’t know what to do with all
of the money they had.
The stock market was too risky and the government bonds had extremely low returns.
So, financial institutions came out with a brilliant idea.
A lot of people wanted to buy a house and banks would give them a mortgage if they had
a good credit score and a sustainable income.
At some point, banks had a lot of mortgages and decided to sell them to investment banks.
Investment banks realized that they were good safe investments, and with much higher returns
than government bonds.
So they bought thousands of them, grouped them together and sold them as securities
to other investors.
It's a pretty good scheme, think about it.
People get the opportunity to buy a house, lenders make money by selling those mortgage
and investment banks also make a profit by turning them into securities and selling them
to investors, and investors get a decent rate of return.
Everyone is happy!
But here is when things went wrong.
Since these investments were good, more and more investors wanted to buy them.
So lenders had to provide more mortgages but everyone who could afford a house already
had one.
Therefore, Banks (Lender) started lending money to people with bad credit score and
without a sustainable income.
The logic behind it was simple.
If they won't be able to pay back the mortgage, they would simply take back the house and
sell it since home prices were raising.
And secondly, as soon as they create the mortgage, they will sell it to investment banks and
it will be their problem.
Investment banks didn’t give a damn because they knew that they will sell them anyways
to investors, so they borrowed huge loans to buy them and sold them again to investors.
Everyone was making money!
However, at some point, those borrowers who didn’t even have a job weren’t able to
pay back their mortgage so they defaulted.
The bank took their house and put it on sale, as they have planned.
Not a big deal.
But more and more people started defaulting.
And more and more houses were on sale.
However, everyone who could afford a house already had one.
So this oversupply caused house prices to decline.
Which means, lenders and investment banks were left with thousands of defaulted mortgages
and houses they couldn’t sell.
Investors stopped buying them because they already had enough of them.
That caused a panic in the market, everyone was trying to cash out before its too late.
But investment banks weren’t able to pay back their investors.
Because they have spent all of their money on these mortgages that are worthless now.
So they started declaring bankruptcy one after another and that only created a bigger panic.
Banks who provided these loans in the first place also couldn’t pay back their depositors
so they had to shut down as well.
The entire stock market was down (draw a graph), the market lost 1.2 trillion dollars in value.
Bank of America’s stock price, for example, fell from 26 dollars to under 6 dollars (draw
a graph).
everyone was afraid to invest, that’s when investors like Warren Buffett stepped in and
made huge investments in Goldman Sacks, Bank of America, dow chemicals and many more.
Because he understood that in a couple of years, the economy will recover and will start
growing again, and these companies will regain back their value (economic cycle graph).
And that's exactly what happened.
The government bailed out many companies.
Printed trillions of dollars and saved the economy from a long-lasting recession and
we had another period of economic prosperity.
And Warren Buffett made 10 billion dollars from this crisis according to wall street
journal.
We will have another crisis sooner or later because we have created many bubbles that
are waiting to burst such as the student debt.
The only question is when, it might happen this year, maybe next year, maybe in a few
years.
And if you are ready, it might be your chance to make an incredible fortune.
But without basic knowledge of the stock market, you will not stand a chance, so here is a
course from Business Casual.
He has done a pretty good job covering everything you need to know about the stock market.
Its fully animated and fun to watch.
You have to watch it if you are serious about investing.
In fact, if you use the link in the description, you will get it for free.
Thanks for watching and I will see you in the next one.