Frenzy for Money

Frenzy for Money

In their frenzy for money, market participants throw over firm foundations of value for the dubious but thrilling assumption that they too can make a killing by building castles in the air. Such thinking can and has enveloped entire nations.

The psychology of the speculation is a veritable theater of the absurd. The castles that were built during the performances were based on Dutch tulip bulbs, English “bubbles”, and good old American real estate and blue-chip stocks. In each case, some of the people made some money some of the time, but only a very few emerged unscathed.

History, in this instance, does teach us a lesson: While the castle-in-the-air theory can well explain such speculative binges, outguessing the reactions of a fickle crowd is a most dangerous game.

“Life is simple but if you don’t put anything into it, you won’t get anything out of it.” (Auliq Ice). Illustration: Megan Jorgensen (Elena)

“In crowds, it is stupidity and not mother-wit that is accumulated”, Gustave Le Bon noted in his 1895 classic on crowd psychology. It would appear that not many have read the book. Skyrocketing markets that depend on purely psychic support have invariable succumbed to the financial law of gravitation. Unsustainable prices may persist for years, but eventually they reverse themselves.  Such reversals come with the suddenness of an earthquake, and the bigger the binge, the greater the resulting hangover. Few of the reckless builders of castles in the air have been nimble enough to anticipate these reversals perfectly  and escape without losing a great deal of money when everything came tumbling down.

Bibliography:

• Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.