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Until this madness is recognized investors will continue to see their portfolios become smaller and smaller.

Let’s first understand what maniac means. concordant to Webster a maniac is “mad; raging with madness; raging with disordered intellect”. You don’t know anyone like that, do you?

There is a book that is still in print today that was originally published in 1841 with the title Extraordinary and Popular Delusions of Crowds by Charles Mackay. He explains in rather horrific detail how people were arrested up in the madness of purchase property in the South Seas in 1720, the numismatic coin craze of 1980 and the tulip bulb trading in 1637. You wonder how people could have been so gullible to have mercenary a single tulip bulb or land they would never see for huge amounts of money. Could something like this ever happen again?

I was floor trader on the commodity exchange in 1973 when the Hunt brothers drove silver from $2.00 per ounce to $54. That mania lasted a few months and quickly tanked to $6.00. I took part in that mania. I was one of the maniacs.

When it was taking place it seemed like the thing to do and very few questioned the sanity of those participating. In fact, if you weren’t part of the crowd there was something wrong with you. When there is a stampede it is best to run with the herd or be trampled to death. However, there were a few who were not mesmerized.

Today we are participating in one of those manias only now it is styled a sparkle and still is not unit taken too seriously. Yes, it is the stock market mania. Many are still trapped in the madness of the crowd of the 1990’s who consider the “market without cease comes back”. They are clutching their tulip bulbs, sorry, stock certificates, and refuse to let go of them seeing as how they know their value will grow back to what it was 3 years ago. Stock owners have turn into mad with what – greed? fear? denial?

When something, in effect anything, drops 50% in price it will take a 100% increase in value to get back to “even”. With today’s economic and world conditions that could be a long time and maybe not in our lifetime.

Years ago I heard a story with respect to how they used to pull down monkeys. A small hole just big enough for the monkey to slip his empty hand inside would be drilled in a nut and candy and fruit would be put in it. The nut was tied to a stake in the ground. When the monkey grabbed a fistful of goodies he would not let go even when the hunter came for him. Greed holds him in an invisible grip.

Many investors today are like those monkeys. They refuse to sell what is remaining of the stocks and mutual funds they own even though they can see the major trend continues down. They became mad with greed and now fear of loss entraps them.

Until this madness is recognized investors will continue to see their portfolios become smaller and smaller. They must learn to let go.

Written 3/10/03 but still applies today.

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