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 

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 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 

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 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.

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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Copyright Albert W. Thomas All right reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” Former 17-year exchange member, floor trader and brokerage company owner.