Devil Take the Hindmost - Edward Chancellor

1. Common features of bull markets and manias:

   1. As a mania progresses, the quality of the stocks that attract speculation declines. "A rising tide floats all ships even the most unseaworthy."

   2. Speculative manias commonly occur at the inception of a new industry or technology when people overestimate the potential gains and too much capital is attracted to new ventures.

   3. Charles Kindleberger suggests that speculative manias are followed by positive feedback as rising share prices induce inexperienced investors to enter the stock market. This results in euphoria, a sign that investors' rationality is weakened.

2. Social role in manias

   1. Self interest should be the only principal economic motivation since manias are less likely when society has other priorities.

   2. Speculation never changes because human nature remains the same. Society will always have a fear of loss, therefore emulating others' behavior regardless of the current situation.

3. Tulip Mania (one of the first bubbles)

   1. Initially stimulated by a large price increase, which attracts new entrants to the market (usually a specific sector)

   2. As the mania progresses, the quality of the stocks that attract speculation declines

   3. Rumors fueling the boom

   4. Rapid growth of leverage through the use of futures and paper credit

   5. Conspicuous consumption among speculators

   6. Sharply rising prices followed by sudden panic without cause

   7. Initial government passivity, followed by belated intervention

4. Speculation & Financial Manias

   1. Speculative trends become self-reinforcing due to herd behavior and positive feedback loops.

   2. John Maynard Keynes believed market values are dictated not by logic but by confidence — a fragile and emotional force.

   3. Prices rise based on the belief they will rise further, regardless of underlying fundamentals — a house of cards built on sentiment.

5. Emerging Market Booms and Crypto

   1. When traditional investments yield less, capital seeks higher returns abroad or in alternative assets.

   2. Crypto’s surge mirrors this pattern — excess savings, low interest rates, and stimulus-fueled liquidity all played a role.

   3. Early gains attract more investors, further pushing prices up — until confidence fades and liquidity dries up.

6. From Busts to New Booms

   1. Crises lead to forced selling and undervalued assets, planting seeds for future recoveries.

   2. As markets rebound, investors forget past excesses and repeat similar mistakes.

   3. Walter Bagehot noted that optimism blinds people during booms, encouraging both reckless speculation and hidden frauds.

7. How Manias Spread – Promotion and Hype

   1. Manias are often orchestrated: new ventures hyped by friends, media, and insiders who retain large positions.

   2. Artificial scarcity, celebrity endorsement, and insider manipulation inflate valuations temporarily.

   3. Public figures who profit during manias become cultural heroes — symbols of success, even if built on speculation.

8. Speculation & Morality

   1. Financial bubbles often coincide with ethical decay — fraud becomes rampant as oversight lags excitement.

   2. Whether speculation causes moral decline or reveals it is unclear, but their association is historically strong.

9. Valuation Techniques and the Illusion of Precision

   1. Traditional methods based on current earnings were replaced by discounted future earnings, allowing inflated valuations.

   2. This method gives a false sense of scientific rigor, even though it depends on uncertain forecasts.

   3. Result: almost any valuation can be justified if optimistic enough assumptions are used.

10. History Repeats (But We Forget)

    1. Every generation believes it’s in a new era, immune to past mistakes.

    2. “Buy the dip” and “this time is different” are persistent themes in each bubble.

    3. Rising asset prices during booms mask underlying economic fragility—until they don’t.