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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (34414)	11/30/1999 10:04:00 AM
From: Benkea	Read Replies (3) \| Respond to of 99985

heinz: I thought you might enjoy this post from a guy at the Fool: "I have been reading "Investment Psychology Explained" by Martin J. Pring. It covers a range of topics other than manias but I though that you would be interested in the following outline which he lists in the book (page 120). This was published in 1993 well before the current internet sutuation. (this is somewhat abbreviated) Ingredients for a mania The Bubble Inflates 1) A believable concept offers a revolutionary and unlimited path to growth and riches. 2) A surplus of funds exists alongside a shortage of opportunities. 3) The idea cannot be irrefutably disproved by the facts but is sufficiently complex that it is necessary for the average person to ask the opinions of others to justify its validity. 4) Once a mania gets underway, the idea has sufficient power and compelling belief to spread from a minority to the majority as the crowd seeks to imitate its leaders. 5) The price fluctuates from the traditional levels of overvaluation to entirely new ground. 6) The new price levels are sanctioned by individuals considered by society to be leaders or experts, thereby giving the bubble an official imprimatur. 7) There is a fear of missing out. The flagship or centerpiece of the bubble is copied or cloned as new schemes and projects attempt to ride on the coattails of the original. 8) Lending practices by banks and other financial institutions deteriorate as loans are made indiscriminately. 9) A cult figure emerges, symbolic of the bubble. 10) The bubble lasts longer than the expectations of virtually everyone. Commentators who warned of trouble in 1928 were initially taken seriously but they were way too early and were discredited by the early part of 1929. 11) An atmosphere of fast, easy gains almost invariably results in shady business practices and fraud being practiced by the perpetrators of the original scheme. 12) At the height of the bubble, the possibility exists that even the most objective person can come up with a simple but eye-catching statistic proving the madness is unsustainable. The Bubble Bursts 1) There is a rise in prices sufficient to encourage an influx of new supply. In the case of the stock market, new issues are offered to investors at an increasing rate. If viable companies cannot be found, money is raised for concepts. 2) Another cause comes from the rise in the cost of interest, either as a result of the increasing demand for credit or from the curtailment of supply from an increasingly skeptical government or both. 3) Prices do not fall, they collapse. The "concept" stocks are exposed for what they are - concepts. 4) Inevitably fraud and other shady dealings are exposed. 5) The government or other quasi-government agencies occasionally intervene to shore up confidence. Such activity merely gives cooler heads the chance to unload before the real price decline sets in. Greg"