Book Review #NINE of 2021: Extraordinary Delusions and the Madness of Crowds

An Investment classic published in 1852.

People like crowds. The bigger the crowd, the more people show up. Small crowd, hardly anybody shows up. -Gallagher

With Gamestop, Tesla, and Bitcoin being the most talked-about investment idea in the last few months.  I decided to get back to the first principles of understanding and knowing manias. The book chronicles 3 manias in the world of investing namely Mississippi mania, the south sea bubble, and Tulipomania.  The book scores high on detail but low on storytelling and I would recommend people read up about these manias on Google or Wikipedia.

The Manias often were started with a novel idea, followed up with fancy stories, and then leading to mad frenzy among the crowds.  The most common result of all manias is enriching a few and losses for the uninformed gullible crowd.  Personally, I believe, more than understanding the nature of mania, the events give us a deep understanding of the markets and investor behavior.  

It is a very common saying in India that a bull market is not peaked until the local paanwala does not start offering you investing advice.  Well, all I can say is I get a similar feeling about Bitcoin as people with no knowledge are questioning my reasons for missing out on this opportunity.  I have a golden rule in investing; I don’t invest in something I don’t understand. This was a lesson learned very early in my career when I invested in pharma stocks.

Recently, Lot of people at 15000 Nifty have started giving me unsolicited tips in stocks. While, I still remember I got worried about the 2008 markets way early in 2006, and stocks moved up much higher before the 2008 crisis.  I am not saying we are in a bubble situation, but there is of course a mad frenzy in a lot of areas. 

Please don’t convince me to invest in PSU stocks, ever.  I would die a pauper rather than invest in PSUs.

Link to my blog of 2006 November – Markets: Dizzying Heights.


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