Customer Reviews

Extraordinary Popular Delusions and the Madness of Crowds and Confusión de Confusiones (A Marketplace Book)

5 star:		(9)
4 star:		(4)
3 star:		(0)
2 star:		(1)
1 star:		(1)

 

 

The stories in this book will have appeal as long as human beings exhibit great greed and fear in their investing. Those traits will encourage people to manipulate those emotions to their advantage, and these tales will recur with new investments every few years or so. Some few winners will garner long-term wealth while most will lose their seats in this game of financial musical chairs . . . known as speculating in endless opportunity. Fast success draws attention, which draws new investors, which creates more fast success. The price takes off like a rocket ship to eventually crash to earth when it runs out of the fuel of optimism and greed.

No one can hope to be a successful investor without absorbing the stories of these timeless follies.

You will find in this book three sections from Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay in 1841, and Confusion de Confusion by Joseph de la Vega from 1680. The Mackay material describes the almost simultaneous Mississippi Scheme in France and the South Sea Bubble in England, as well as the earlier speculation in tulips in the Netherlands. Confusion de Confusion is a translation from the Spanish about speculation in Amersterdam in the securities of the Dutch East and West India Companies.

The Mississippi scheme involved the use of private bank notes to improve the French debt and currency that were eventually tied into investments in a colony in Mississippi. John Law, a Scotsman, was the originator of the scheme, which grew out of control when the French printed too much money and the Mississippi colony foundered. You can read more about this in the recent book, The Millionaire. The basic facts are more easily absorbed, however, in this volume. Following along shortly thereafter, the English began to speculate in stock in a monopoly to develop trade with the Spanish, also tied to reducing public debt. That became the South Sea bubble and the speculation was encouraged by the early success of stock investors in the Mississippi scheme in France. Tulipomania is considered the best of the financial parts of this book, and recounts the amazing heights that a single tulip bulb could bring (with a famous table of the buying power of a florin at thta time) and the problems encountered, such as when a sailor mistook a rare bulb for an onion and had it for his lunch! These three essays are about psychology, and do not go into the market details too much. The descriptions about how the government dealt with these disasters provide relevant information for regulators.

In Confusion de Confusion, there are four dialogues about how bull and bear markets can be manipulated and the consequences, in the context of speculation in hopes of gain for the new colonies and trade. These dialogues are superb examinations of how markets actually work, and will be an illumination to the new investor of who she or he may be up against. The lesson: Be sure you know the rules and think about how they could be used against you.

This book is greatly improved by a series of essays. One is by Peter L. Bernstein in which he makes comparisons of the current markets to these early essays. Herman Kellenberg's introduction explains many of the details of the Amsterdam markets very well to make the de la Vega material more accessible. I especially liked the introduction by Martin S. Fridson in which he points out some of the errors and hyperbole in the Mackay material, and puts that work into a current context. Without these essays, I would simply encourage you to seek out the originals instead of this book. But these modern essays will add a great deal to your understanding.

Mackay's book was reportedly a favorite of Bernard Baruch's, which has helped its popularity enormously over the last 70 years. After you read this book, I do recommend that you read the entire book. Although it is a tough slog in places, you will come away with a much better understanding of crowd psychology than these three sections alone will give you.

The fundamental mechanism for each of these mania is that a new investment opportunity arises that seems to offer great potential. No one is quite sure what the future will hold, and optimism takes over. The price starts to rise, and that attracts attention. As more people invest, the market rises more. That draws more attention and investors. This continues until either pessimism starts to balance excess optimism, or the market simply runs out of new investors. It takes ever more money to create the same growth, so the market eventually has to fall. Along the way, a few are smart and take out their money. The rest lose.

This mechanism occurs about once a decade. Some of the recent examples are Internet stocks in the 90s, biotechnology stocks in the 80s, the Nifty Fifty in the 70s, the conglomerates in the 60s, electronics companies in the 50s, radio companies in the 20s, utility trusts around 1900, railroads in the 1880s, and so forth back in time. The key lesson: If you think a mania will form, do your buying and selling very early in the game or ignore the game altogether and go into safe securities. Either one will work. If you want to split your money in half with half for speculation and half for safety, that would give you the best and safest route. Most people do not have the emotional discipline to sell in time, so it is dangerous to play. The markets will fall many times faster than they rose, so the time to escape is on the way up.

I hope you will buy and read this book, and share it with your children when they start to invest.

When you are done with the book, I also hope you will also consider where else mania take over. These occur in consumption patterns (not unlike tulip bulbs), activities (remember disco?), businesses (franchised door-to-door selling), and entertainment (quiz shows will come and go many times). Be sure you watch out for your exposure to these mania as well. Avoiding wastes of time and resources are an important part of achieving true growth.

Extraordinary Popular Delusions and the Madness of Crowds has been a favorite of mine for years, so while I'm happy to see it popularized, there's so much I miss! This is the first book of Urban Legends. There's so much to the book, and so much is so funny, and the financial stuff is the driest part of the book.

That said, I understand Fridson has a theme, and by using these two old works, one Victorian, and one Louis XIV, he shows that nothing much changes: people will do very stupid things if that's what everyone else is doing. More to the point, people will do very risky things with their money, if everyone else is doing so. Examples abound in these two great books, and Fridson doesn't miss a chance to make a point, and usually gets a good laugh in as well.

Tulipomania (when the price of tulip bulbs in Holland inflated beyond the ridiculous) is especially revealing, and though Fridson is using it to make a point about price inflation, I couldn't help thinking also about the marketing technique by which the public is convinced it needs something, then that something is doled out like Oreos to a diabetic. I'm thinking specifically of diamonds, but there are lots of examples.

Fridson pulls this altogether, and as big a fan as I am of Extraordinary Popular Delusions and the Madness of Crowds, the original work he has created by mating a part of it with the other work, and with his own explanatory text is a great book.

I am not an investor, and generally find economics petrifyingly boring, but this book was a fun romp. Even if you have no interest in finance, read this book just to have a good laugh at our species.

Last week's over 25% percent decline in the Nasdaq surprised and scared all of us. . . ahh but not if you had read this book.

So after the meltdown we had this past week, I picked up the book and read it again over the weekend. Everything was put into perspective.

If I may borrow from the book, from the introduction by Fridson to be more specific, "Popular Delusions makes a forceful case that when a price trend is overdone, fine-tuned analysis becomes superfluous. Nevertheless, 'obviously' overvalued markets sometimes proceed to become even more overvalued. It is not a bad idea, therefore, to leaven Mackay's emphasis on mass hysteria with Joseph de la Vega's attention to the coldly calculating side of things."

You will understand why the even the most talented have been lured into the hysteria of joining the dot.com world for those lucrative (or at least they were)stock options which aren't worth much anymore and why they will never reach the highs that they experienced not too long ago. It's not mathematical, it's psychological. Crowd psychology actually.

So if you haven't yet read these classics that are truly timeless even a century and a half later, what are you waiting for?

It's always good to check a place like Project Gutenberg when you're considering older texts, especially things published before 1923. In this case, the book is in the public domain and you can download it for free.

This book has been around for over 100 years. The lessons of those events is applicable to the present time. I highly recommend it.

I'm not sure how to categorize this book - history, comedy, psychology. It does a good job in describing some of the most hysterical manias over the course of history, but not in a very exciting manner and I'm not sure to what point: no deep motives are presented and no conclusions are drawn. Some frenzies are described in too much detail (like in the case of 'The Duels') while others are very succinct (like the case of the Tulipomania).
Overall there are some interesting parts but it's mixed with some very boring ones... I recommend it if the reader is interested in a plain history of Mankind manias.
PS: By the way, it seems that we are not able to learn from the past. History keeps repeating itself...

I wanted to read this book to learn more about our current financial crisis. And I learned that if you think that the current financial crisis is an extraordinary event and our government will place proper regulations to prevent this from happening again, then you can keep on dreaming, or read this book instead. You will learn that manias such as what we experienced in the housing market and during the internet bubble are nothing new.

In this book, the author takes readers through the history all types of manias such as The Mississippi Scheme, The South Sea Bubble, and The Tulipomania. I found it amazing that we are no different from people 300 years ago. We are greedy and irrational and looking for quick ways to get rich. And unfortunately, we do not learn very well from history. This book is fabulous and I found it very interesting.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

"Extraordinary Popular Delusions and the Madness of Crowds" and "Confusion de Confusiones" are both works that address speculation frenzy in early financial markets but which have continued to enjoy a surprising popularity among investors centuries after they were written. Perhaps that is because a certain romanticism and distance comes with age, while at the same time these stories of speculative bubbles tell us that nothing really changes in the markets no matter how sophisticated we get. A foreword by Peter Bernstein sets the stage for the 17th century proliferation of financial instruments and pursuit of wealth. Martin S. Fridson's Introduction comments on the enduring popularity of these works, their differing perspectives on market forces, and their debunkers.

"Extraordinary Popular Delusions and the Madness of Crowds" was authored by Scotsman Charles MacKay in 1841. It was a favorite book of Bernard Baruch, who wrote the foreword to the 1932 edition, a much longer work than what we see here. Only chapters relating to financial markets have been included in this Wiley Investment Classics edition. MacKay recounts three speculation frenzies and their aftermaths: The 1717 Mississippi Company of John Law and France's misadventures with paper money under the regent Duc d'Orleans, the 1711 South Sea Company bubble, and, more briefly, the "tulipmania" that overtook Holland in the 1630s. MacKay concentrates on the human behavior that drove these bubbles rather than on financial minutiae. If you're interested in learning more about John Law, father of modern finance, Millionaire by Janet Gleeson is a very readable biography.

"Confusion de Confusiones" author Joseph de la Vega wrote about what he knew personally: the stock market in late-17th century Amsterdam. The 1957 introduction by Hermann Kellenbenz includes a bio of de la Vega and helpful explanations of the types of transactions to which the work refers. The main text is a series of Dialogues between a Shareholder, a Philosopher, and a Merchant, in which the Shareholder explains the stock market, which he describes as "this enigmatic business which is at once the finest and most deceitful in Europe", the "quintessence of academic learning and a paragon of fraudulence." De la Vega uses stock of the Dutch East India Company as an example and lays the blame for price instability on syndicates of bears and bulls who conspire to move prices. I can't say that either of these works is useful -we have plenty of bubbles in our own time, after all- but they are engaging curiosities.

This is a must read if you work in any kind of market-related profession. The historical perspectives offered in both books are well-written and provide ample documentation into the history of panics, manias and crashes.

The book, despite its age, holds up well against many modern books on the same topic and should definitely be considered a finance classic!

This was the warning shot ahead of the internet bubble. Hearing about the Dutch tulip bubble in 1995 (when I first read the book) we should have been well prepared to duck when Amazon, Ebay and their fallen comrades shot to the moon. If only we had listened...

The book clearly articulates why "The more things change, the more they stay the same" and helps us understand when to buck the herd. Perhaps a bit long, it is well written and worth the space on your nightstand.