Exactly ten years have passed from the last financial crisis. Even though the crisis’s exact beginning is debatable, a turning point was definitely in September 2008 when Lehman Brothers, the fourth-largest investment bank in USA, filed for bankruptcy. Just one year before that, credit markets had been at an all-time high, while half a year after the bankruptcy, in March 2009, they had fallen to their lowest. Crowdfunding was a fresh approach in 2008 and credit markets had been actively operating for over 100 years – which leads us searching for answers to the title question from credit markets.
We have reached 2018. The ETF SPY, which tracks the 500 biggest companies in the US, had reached around 155 dollars by the market high-point and decreased to around 80 dollars during the fall, but today, it is traded at 265 dollars. Let us imagine purchasing shares in 2007 with the high-point price of 155 dollars. How would we react if we saw prices steadily falling on credit markets? Would we sell? With what price? What proportion? We might even feel faint because a constant decrease in prices could cause extreme unpleasantries, and we would even prefer not to follow the market. If we entered the market in the beginning of 2009, we might find ourselves at a completely different starting-point – we would have no personal relationship with market prices and trading would be somewhat smoother. Regardless, financial advisers in the US have said that in 2007, their phones were red and euphoric callers were asking information about all sorts of exciting companies, but in 2009, they were under the impression that they might as well terminate their contracts with phone companies, for market operators were scared to conclude any transactions. Trust in markets was persistently earned back and by the time investors came to the stock exchange, a new boom was already in full swing.
You might wonder, why does a crowdfunding marketplace write about credit markets on their blog? The truth is, we are not actually writing about credit markets so much as investing psychology. The behaviour of credit markets often represents the behaviour of investors.