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Saturday, October 01, 2005

Books I read recently - 1

I read two very good books on Investing and Investor Psychology recently. One was Nicholas Nassim Taleb's Fooled By Randomness ; second was Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay (originally published 1841).

The second talks about "crowdthink" or crowd madness. Though written 164 years ago first, it is as relevant as it was then. It touches upon non-financial pursuits like witch hunts and also the financial follies of The Mississippi Scheme, The Tulip Mania, The South Sea Bubble etc. A few quotes from it:-

Some in clandestine companies combine;
Erect new stocks to trade beyond the line;
With air and empty names beguile the town,
And raise new credits first, then cry 'em down;
Divide the empty nothing into shares,
And set the crowd together by the ears -
Defoe

Then stars and garters did appear
Among the meaner rabble;
To buy and sell, to see and hear
The Jews and Gentiles squabble

The greatest ladies thither came,
And plied in chariots daily,
Or pawned their jewels for a sum
To venture in the Alley.
-
A South-Sea Ballad, or, Merry Remarks upon Exchange-Alley Bubbles

"But, the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people was one started by an unknown adventurer, entitled, "A company for carrying on an undertaking of great advantage, but nobody to know what it is."

"Subscribers here by thousands float,
And jostle one another down,
Each paddling in his leaky boat,
And here they fish for gold and drown.

Now buried in the depths below,
Now mounted up to heaven again,
They reel and stagger to and fro
And their wits' end, like drunken men.

Meantime, secure on Garraway cliffs,
A savage race, by shipwrecks fed,
Lie waiting for the foundered skiffs,
And strip the bodies of the dead" -
Swift

"Three causes especially have excited the discontent of mankind; and, by impelling us to seek for remedies for the irremediable, have bewildered us in a maze of madness and error. These are death, toil and ignorance of the future - the doom of man upon this sphere, and for which he shews his antipathy by his love of life, his longing for abudnance, and his craving curiosity to pierce the secrets of the days to come."

"Let us not, in the pride of our superior knowledge turn with contempt from the follies of our predecessors. The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive. As the man looks back to the days of his childhood and his youth, and recalls to his mind the strange notions and false opinions that swayed his actions at that time, that he may wonder at them; so should society, for its edification, look back to the opinions which governed the ages fled. He is but a superficial thinker who would despise and refuse to hear of them merely because they are absurd. No man is so wise but that he may learn some wisdom from his past errors, either of thought or action, and no society has made such advances as to be capable of no improvement from the retrospect of its past folly and credulity. And not only is such a study instructive: he who reads for amusement only will find no chapter in the annals of the human mind more amusing than this. It opens out the whole realm of fiction - the wild, the fantastic, and the wonderful, and all the immense variety of things "that are not, and cannot be; but that have been imagined and believed."


This book is published by Templeton Foundation.


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