Maniac Investment

Let’s first understand what maniac

means. According to Webster a maniac is “mad;

raging with madness; raging with disordered

intellect”. You don’t know anyone like that, do


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 caught up in the madness of buying 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 bought a single tulip bulb or

land they would never see for huge amounts of

money. Could anything like this ever happen


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


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


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Today we are participating in one of

those manias only now it is called a bubble and

still is not being 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 believe the “market always comes

back”. They are clutching their tulip bulbs,

sorry, stock certificates, and refuse to let go

of them because they know their value will grow

back to what it was 3 years ago. Stock owners

have become mad with what – greed? fear? denial?

When something, almost 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 about how

they used to catch monkeys. A small hole just

big enough for the monkey to slip his empty hand

inside would be drilled in a coconut and candy

and fruit would be put in it. The coconut 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.

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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 clearly 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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by Al Thomas