Tulipomania Blowoff Contest: Why and When will it end? Message Board

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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end?

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Jun 26 5:00 PM EST

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To: Sir Auric Goldfinger who wrote (2792)	4/16/2000 8:34:00 PM
From: Mad2	Read Replies (1) of 3543

From the 1934 classic edition "Security Analysis" by Graham and Dodd THE FACTOR OF HUMAN NATURE One of the striking features of the past five years has been the domination of the financial scene by purely psychological elements. In previous bull markets the rise in stock prices remained in fairly close relationship with the improvement in business during the greater part of the cycle; it was only in its invariably short-lived culminating phase that quotations were forced to disproportionate heights by the unbridled optimism of the speculative contingent. But in the 1921-1933 cycle this "culminating phase" lasted for years instead of months, and it drew its support not from a group of speculators but from the entire financial community. The "new-era" doctrine---that "good" stocks (or blue chips) were sound investments regardless of how high the price paid for them-----was at bottom only a means of rationalizing under the title of "investment" the well-nigh universal capitulation to the gambling fever. We suggest that this psychological phenomenon is closely related to the dominant importance assumed in recent years by intangible factors of value, viz., good-will, managment, expected earning power, etc. Such value factors, while undoubtly real, are not suseptible to mathematical calculation; hence the standards by which they are measured are to a great extent arbitrary and can suffer the widest variations in accordance with the prevalent psychology. The investing class was the more easily led to ascribe reality to purely speculative valuations of these intangibles because it was dealing in good part with surplus wealth, to which it was not impelled by force of necessity to apply the old-established acid test that the principal value be justified by the income. Mad2

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