Market Melt-Up: Financial Madness, Social Madness And The Crowd

It’s hard to think independently and straight when your instincts tell you that the safe thing is to do and think what everyone else is doing and thinking. But thinking and doing alongside everyone else isn’t really a safer thing to do. It just makes you feel less like an idiot when things go wrong. And this is where investment and social manias converge.

We tried to say this yesterday but couldn’t find the right words. We dusted off our copy of Gustave Le Bon’s “The Crowd,” last night and will have a fresh go. Crowd behavior manifests itself in markets, politics, and popular culture.

It occurred to us yesterday that the melt-up phase of a market usually corresponds to the melt-down phase in a public opinion. That is, when people go mad with their money, it’s a sign that they’ve simply gone mad about most things and can be easily led, duped, or manipulated into a frenzy.

Is it any coincidence, you might wonder, that one of the most popular shows on CNBC is called, “Mad Money?”

Crowd psychology has always worked this way. This time really is no different.  Human beings haven’t really made any progress in the last few thousands years when it comes to collective madness, either. You just read about it instantly these days and see it on TV right away. Financial madness is correlated to social madness. And both are amplified by media madness. And all of it is sheer…madness.

Dan Denning
Markets and Money

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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S&P 500 Index Funds. Buy and hold the market man. It always goes up over the long term. Don’t think. Efficient market hypothesis. You can’t beat the market. But if you’re talking to a broker from Edward Jones or A.G. Edwards, Index Funds suck. They won’t tell you that they don’t get a commission with Index Funds. But will tell you to invest in American Mutual Funds. Yeah bro. Greater Alpha. Less Beta. 30-Years from now you’ll retire a millionaire. Don’t think. Just believe. Crowds Rule. Sports Riots. Futbol. Yeah. Yeah. Get pumped. Go nuts. Burn stuff. Jump off the… Read more »
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