FRENZY BUBBLES, BUSTS, AND HOW TO COME OUT AHEAD

[...]... how we perceive information and respond to competitive pressures We normally try to understand the economy by tracking the numbers— profits, GDP, stock prices, the unemployment rate, inflation However, using these indicators exclusively is like trying to understand how a car works just by looking at a speedometer and odometer Frenzy opens the hood and inspects the engine to reveal the core human machinery... many very smart and savvy people fell victim to its spell to the point of delusion and detachment from reality The problem, however, is not that the potential vision is completely wrong The problem lies primarily in investors’ expectations of how quickly the vision will 16 FRENZY become reality and how to profit from it The problem with grand visions is that they are not specific They become so compelling,... that the bubble is going to end Investor enthusiasm drives far too much money to chase too few real opportunities The pressures force many investors to warp their normal decisionmaking and even skeptics begin to capitulate and play the game, many despite their better judgment Eventually, the risks of being wrong with the crowd become easier to manage than being correct but standing alone, resisting... do not provide much detail to distinguish what is utopian and what is executable It is along the rocky road toward the future that we stumble and lurch through bubbles and busts But eventually after great riches and loses, the economy as a whole gets there Bubbles cannot thrive without some grand vision to motivate investors and business people Biotech bubbles that seem to occur periodically are fueled... related to computers and high technology that seemed to offer great, but uncertain, opportunities to improve businesses Radio, railroads, the telephone—they also embodied a romantic vision of a new world The early entrepreneurs wanted to change the world and had grand schemes about how to do this Those who were lucky enough to participate in the early years knew that the excitement was not just about money;... rush from one to the other on foot with stock quotes As the industry expanded and trading needed to be done between New York and PERCEPTIONS (SEEING IS BELIEVING) 21 Philadelphia, traders used telescopes and flags perched on hills and buildings to send signals In 1844, the telegraph made communication easier and faster across longer distances In 1867, the stock ticker distilled information into the stream... since other factors, such as costs and competitive pressures were often ignored 24 FRENZY “It snowballs You see the stock market going up every day and even smart people begin to think, ‘it went up the last 30 days in a row, its got to go up tomorrow it’s just one more day.” It doesn’t happen to be true,” said one investor A Business Week survey showed that 52 percent of individual investors in 1999... effectively, or we will continue to be the victims of market upheavals rather than their masters While a few lucky investors manage to make a lot of money during bubbles, many investors—from individuals to venture capitalists to business managers— make bad decisions that end up wasting money and destroying value With more insight into the human dimension of bubbles, we can become more effective at managing... secondary routes, which turned out to be more expensive and take longer to build.9 The canals required high upfront costs to pay for the construction, but maintenance was comparatively negligible akin to today’s telecommunications networks Part of the initial costs consisted of purchasing land around them Wedgewood’s initial interest lay in pottery, but he was among the first to see the vision of how canals... of it.”22 Simple and direct language with vivid testimony persuades jurors more than complex language For example, the story that the robber “took about ten minutes to pick up a box of Kleenex, a six pack of Coors, and a Mars bar” is more vivid than “the robber came into the store and grabbed some items before approaching the clerk.” Storylines with visual presentations, according to this research, . 1-4 03 9-6 131-X Library of Congress Cataloging-in-Publication Data Haacke, Carl. Frenzy : bubbles, busts and how to come out ahead / by Carl Haacke. p. cm. Includes bibliographical references and. FRENZY BUBBLES, BUSTS, AND HOW TO COME OUT AHEAD CARL HAACKE FRENZY Copyright © Carl Haacke, 2004. All rights reserved. No part of this book may be used or reproduced in any manner whatsoever without. a result, too many copy-cat start-ups emerge for too small a customer mar- ket. The market becomes saturated, becoming increasingly unsustainable and insuring that the bubble is going to end. Investor