I have little confidence in the integrity of political and business leaders, but I have great confidence that the 3 Lord of the Ring movies will be owned on DVD discs and loved by many generations of Americans. (I just finished reading the 4 books again after 36 years.)
I'll be happy to lend you my copy of Extraordinary Popular Delusions for your 3 Ring DVDs. <g> I remember that at the time of the first movie release AOL was sitting on a string of blockbuster movies only 1 of which was the Ring series. My trading records show that I bot 300 AOL 12/31/01 @ 32.5 and sold on 1/4/02 @ 31.22 because the stock was just acting lousy and not getting any traction at all from a film that was going to make them over a billion $.
Comparing the internet bubble to the tulip bubble is only valid in the area of human psychology.
IMO, that is what bubbles are fundamentally about, psychology.
Here's the first paragraph of Mackay's preface to the edition of 1852:
"IN READING THE HISTORY OF NATIONS, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first. We see one nation suddenly seized, from its highest to its lowest members, with a fierce desire of military glory; another as suddenly becoming crazed upon a religious scruple; and neither of them recovering its senses until it has shed rivers of blood and sowed a harvest of groans and tears, to be reaped by its posterity. At an early age in the annals of Europe its population lost their wits about the sepulchre of Jesus, and crowded in frenzied multitudes to the Holy Land; another age went mad for fear of the devil, and offered up hundreds of thousands of victims to the delusion of witchcraft. At another time, the many became crazed on the subject of the philosopher's stone, and committed follies till then unheard of in the pursuit. It was once thought a venial offence, in very many countries of Europe, to destroy an enemy by slow poison. Persons who would have revolted at the idea of stabbing a man to the heart, drugged his pottage without scruple. Ladies of gentle birth and manners caught the contagion of murder, until poisoning, under their auspices, became quite fashionable. Some delusions, though notorious to all the world, have subsisted for ages, flourishing as widely among civilised and polished nations as among the early barbarians with whom they originated,—that of duelling, for instance, and the belief in omens and divination of the future, which seem to defy the progress of knowledge to eradicate them entirely from the popular mind. Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
econlib.org
And Barnard Baruch's begins his Foreword to the Second Edition, copyright 1932, by noting that "All economic movements, by their very nature, are motivated by crowd psychology."
In my thinking, psychology is the most important tool for understanding at least the shortrun behavior of stock prices.
The point was not driven home for me until October 1987 when I saw Baruch's colloquy in action:
"Have you ever seen in some wood, on a quiet sunny day, a cloud of flying midges - thousands of them - hovering apparently motionless in a sunbeam?...Yes?...Well did you ever see the whole flight - each mite apparently preserving its distance from all others - suddenly move, say thre feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall. Did you ever see them move directly back again in unison? Well, what made them do that?"
I defy you to find any other explanation for what happened to cause a 23% decline in the Dow on Monday 10/19/87 other than crowd psychology. The news over the preceding weekend was overwhelmingly benign. I became totally discouraged that I had studied economics instead of psychology and vowed to mend my ways.
It is wonderful that at 1300+ on the NAZ, almost a 75% fall, references are made to a 16 year bear and 1966-82, a period of less than a 20% fall with a maximum ~45%.
Don't be fooled by the action of an average over a 16 year period. The seemingly mild aggregate decline masks a period of extreme turbulence. As I write I am looking at my old copy of the SRC Blue Book of 12 years of prices, earnings and dividends from 1971 to 1983. Some examples of price ranges (hi and low) during the turbulent 73-74 period (during which AMAT as noted earlier lost almost 90% of its value):
Abbott Labs 10-4
Accuray 34-3
Adobe Oil 10-2
AMD 4-1/4
Aetna 30-10
AH Ahmanson 34-6
Alberto Culver 28-4
American Greetings 26-3
AMR 30-5
Avon 140-19
Easily as bad as the 75% Naz implosion you cite. What's interesting is that while we recovered from '74 to '80, we did not get above the 1966 level, which is why we technically remained in a bear market all this time.
Sam |
