- Excessive leverage
When things are going well, leverage (a.k.a. “borrowed money”) can seem like an excellent tool. For example, if I buy $5,000 worth of stock and it rises by 20%, I made $1,000. If I borrow an additional $5,000 and bought $10,000 worth of the same stock, I’d make $2,000, doubling my profits.
On the other hand, when things move against you, leverage can be downright dangerous. Let’s say that my same $5,000 stock investment dropped by 50%. It would sting, but I’d still have $2,500. If I had borrowed an additional $5,000, a 50% drop would wipe me out completely.
Excessive leverage can create a downward spiral in stocks when things turn sour. As prices drop, firms and investors with lots of leverage are forced to sell, which in turn drives prices down even further. The most notable occasion was the Crash of 1929, in which excessive purchasing of stocks on margin played a major role.
3. Interest rates and inflation
Generally speaking, rising interest rates are a negative catalyst for stocks and the economy in general.
This is especially true for income-focused stocks, such as real estate investment trusts (REITs). Investors buy these stocks specifically for their dividend yields, and rising market interest rates put downward pressure on these stocks. As a simplified illustration, if a 10-year Treasury note yields 3% and a certain REIT yields 5%, it may seem worth the extra risk to income-seeking investors to choose the REIT.
On the other hand, if the 10-year Treasury’s yield spikes to 4%, the REIT’s dividend will (roughly) need to rise proportionally to attract investors. And lower stock prices translate to higher dividend yields, on a percentage basis.
From an economic standpoint, higher interest rates mean higher borrowing costs, which tends to slow down purchasing activity, which can in turn cause stocks to dive. So, if the 30-year mortgage rate were to spike to, say, 6%, it could dramatically slow down the housing market and cause homebuilder stocks to take a hit.
4. Political risks
While nobody has a crystal ball that can predict the future, it’s a safe bet that the stock market wouldn’t like it much if the U.S. went to war with, say, North Korea.
Markets like stability, and wars and political risk represent the exact opposite. For instance, the Dow Jones Industrial Average dropped by more than 7% during the first trading session following the Sept. 11, 2001, terror attacks, as the uncertainty surrounding the attacks and the next moves spooked investors.
Remember, the last sucker who got into the market back in 2005 is also a winner if he had held on it long enough. On the other hand, the “winner” who sold to that last sucker might or might not be doing well depending on what he has done with the proceeds…
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5. Tax changes
The recent Tax Cuts and Jobs Act should certainly have the effect of higher corporate earnings, and is likely to be a generally positive catalyst for the market.
On the other hand, tax increases can have the opposite effect. One potential way to fix the Social Security funding problem would be to raise payroll taxes on employees and employers. There are several ways this could happen, but this would mean lower paychecks for workers and higher expenses for employers, and could certainly be a negative catalyst.
The same could be said if short-term capital gains taxes or dividends lose their favorable treatment, if the corporate income tax is raised in the future, or if any other significant tax hikes occur. This isn’t likely to happen while the Republican Party is in power, but it’s certainly possible in the future.
And…finally…you!
6. Panic
It’s important to point out that crashes aren’t generally caused by one or more of these factors all by themselves. It’s typically a combination of a negative catalyst and investor panic that causes a sharp dive in the stock market.
For example, the steepest market drop during the financial crisis occurred during September and October 2008. Yes, it was real estate speculation and excessive leverage that led to the trouble, but fears that the U.S. banking system could potentially collapse sent investors into a panic, which led to the actual crash.
(Article on Mercurynews home page right now.)
“It’s a feeding frenzy fueled by a factor of fear,” said Kevin Cole, Alain Pinel broker and president of the Santa Clara County Association of Realtors.
“Homes in the most desirable Silicon Valley locales gaining nearly 30 percent over the last year”
30% in 1 year !! If this isn’t FOMO, what is?!
No one ever said it wasn’t… 
@tomato I realized I am merely a bull in the name. When it comes to offers I chicken out…@wuqijun is the real one, I retire my name.
Permabull
Y’all call him a permabull, he’s like 
, I call him a bull, he goes 
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Hěn niú
He is the only one left…I am the most bearish in years
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According to urbandictionary, a bull is a sexually dominant male who, for fun or financial gain, cuckolds and humiliates husbands while servicing their wives.
Why would you call him a bull?
Selling for profit is not crazy. When I was selling, we never planned buying another home, but human mind changes after some time. I regretted when I was looking another home.
I really meant selling Cupertino home. IMO, All money or stocks or homes are meant to enjoy ourselves. What is the point of accumulating wealth without enjoying?
Correct ! Early buying home is better than late. Homes minimum appreciates at the rate of inflation. In bay area, 5%-7% range depends on location.
The essense of investing can be boiled down into 2 words: delayed gratification. You give up something today in hopes of getting something better tomorrow. Whenever you are thinking about doing something for enjoyment, it’s actually turning delayed gratification into instant gratification, and wrecking your financial goal.
That’s why investing is always hard and is never easy. Because you have to constantly give up something now for a better tomorrow. It’s a constant tuck-of-war and tradeoff between whether to enjoy what you have now versus enjoy less now and more in the future.
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Wqj: are you seeing light at the end of the tunnel near term? Marcus is also bull these days
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Are we even in a tunnel? 
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You are young (and naturally aggressive plan ) thinking about future enjoyment. At this point, I came from that (enjoy future) situation to enjoy current 
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