Investing Information

Maniac Investment

Let's first understand what maniacmeans. According to Webster a maniac is "mad;raging with madness; raging with disorderedintellect". You don't know anyone like that, doyou?

There is a book that is still inprint today that was originally published in1841 with the title Extraordinary and PopularDelusions of Crowds by Charles Mackay. Heexplains in rather horrific detail how peoplewere caught up in the madness of buying propertyin the South Seas in 1720, the numismatic coincraze of 1980 and the tulip bulb trading in1637. You wonder how people could have been sogullible to have bought a single tulip bulb orland they would never see for huge amounts ofmoney. Could anything like this ever happenagain?

I was floor trader on the commodityexchange in 1973 when the Hunt brothers drovesilver from $2.00 per ounce to $54. That manialasted a few months and quickly tanked to $6.00.I took part in that mania. I was one of themaniacs.

When it was taking place it seemedlike the thing to do and very few questioned thesanity of those participating. In fact, if youweren't part of the crowd there was somethingwrong with you. When there is a stampede it isbest to run with the herd or be trampled todeath. However, there were a few who were notmesmerized.

Today we are participating in one ofthose manias only now it is called a bubble andstill is not being taken too seriously. Yes, itis the stock market mania. Many are stilltrapped in the madness of the crowd of the1990's who believe the "market always comesback". They are clutching their tulip bulbs,sorry, stock certificates, and refuse to let goof them because they know their value will growback to what it was 3 years ago. Stock ownershave become mad with what - greed? fear? denial?

When something, almost anything,drops 50% in price it will take a 100% increasein value to get back to "even". With today'seconomic and world conditions that could be along time and maybe not in our lifetime.

Years ago I heard a story about howthey used to catch monkeys. A small hole justbig enough for the monkey to slip his empty handinside would be drilled in a coconut and candyand fruit would be put in it. The coconut wastied to a stake in the ground. When the monkeygrabbed a fistful of goodies he would not let goeven when the hunter came for him. Greed holdshim in an invisible grip.

Many investors today are like thosemonkeys. They refuse to sell what is remainingof the stocks and mutual funds they own eventhough they can clearly see the major trendcontinues down. They became mad with greed andnow fear of loss entraps them.

Until this madness is recognizedinvestors will continue to see their portfoliosbecome smaller and smaller. They must learn tolet go.

Written 3/10/03 but still applies today.

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Copyright Albert W. Thomas All right reserved.Author of "If It Doesn't Go Up, Don't Buy It!"Former 17-year exchange member, floor traderand brokerage company owner.


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