Maniac Investment
Let’s first understand what maniac
means. According to Webster a maniac is “mad;
raging with madness; raging with disordered
intellect”. You don’t know anyone like that, do
you?
There is a book that is still in
print today that was originally published in
1841 with the title Extraordinary and Popular
Delusions of Crowds by Charles Mackay. He
explains in rather horrific detail how people
were caught up in the madness of buying property
in the South Seas in 1720, the numismatic coin
craze of 1980 and the tulip bulb trading in
1637. You wonder how people could have been so
gullible to have bought a single tulip bulb or
land they would never see for huge amounts of
money.
Could anything like this ever happen
again?
I was floor trader on the commodity
exchange in 1973 when the Hunt brothers drove
silver from $2.00 per ounce to $54. That mania
lasted a few months and quickly tanked to $6.00.
I took part in that mania. I was one of the
maniacs.
When it was taking place it seemed
like the thing to do and very few questioned the
sanity of those participating. In fact, if you
weren’t part of the crowd there was something
wrong with you. When there is a stampede it is
best to run with the herd or be trampled to
death.
However, there were a few who were not
mesmerized.
Today we are participating in one of
those manias only now it is called a bubble and
still is not being taken too seriously. Yes, it
is the stock market mania. Many are still
trapped in the madness of the crowd of the
1990’s who believe the “market always comes
back”.
They are clutching their tulip bulbs,
sorry, stock certificates, and refuse to let go
of them because they know their value will grow
back to what it was 3 years ago. Stock owners
have become mad with what – greed? fear? denial?
When something, almost anything,
drops 50% in price it will take a 100% increase
in value to get back to “even”. With today’s
economic and world conditions that could be a
long time and maybe not in our lifetime.
Years ago I heard a story about how
they used to catch monkeys. A small hole just
big enough for the monkey to slip his empty hand
inside would be drilled in a coconut and candy
and fruit would be put in it. The coconut was
tied to a stake in the ground.
When the monkey
grabbed a fistful of goodies he would not let go
even when the hunter came for him. Greed holds
him in an invisible grip.
Many investors today are like those
monkeys. They refuse to sell what is remaining
of the stocks and mutual funds they own even
though they can clearly see the major trend
continues down. They became mad with greed and
now fear of loss entraps them.
Until this madness is recognized
investors will continue to see their portfolios
become smaller and smaller. They must learn to
let go.
Written 3/10/03 but still applies today.
INVESTMENT LETTER 3 month free trial.
http://www.mutualfundmagic.comCopyright Albert W. Thomas All right reserved.
Author of “If It Doesn’t Go Up, Don’t Buy It!”
Former 17-year exchange member, floor trader
and brokerage company owner.
Al Thomas
