Beware of the Herd Mentality

“Those who cannot remember the past are condemned to repeat it” - George Santayana


Technical Analyst, or popular, Chartist, believes one of the idiom in Technical Analysis "History tends to repeat itself".


Emotions, be it a greed, state of euphoria, impulsive decision or a very thorough calculated judgement, These factors, move the Market since the beginning of time. This "phenomenon" never and will never change. As Human beings, we have a limited life span. As one generation fades away, the "younger" generation takes place and so does the legacy left behind, forgetting the lessons learned by those before them.


Let us walk through the history of time, back in the 1600s... the Dutch Golden Age.


In February 1637, tulips, yes tulips... was sought after by many people from all walks of life. This is due to the nature of tulips, with its saturated intense petal color that no other plant had. Due to the "craze" of tulips, price of tulips shot up high creating the first speculative bubble in modern history - “Tulipmania".

The Semper Augustus, famous for being the most expensive tulip sold during tulip mania.


During the Tulipmania, contract prices for tulip bulbs reached extraordinarily high levels before it collapsed dramatically in February 1637.


(Bulb is a rounded underground storage organ present in some plants, notably those of the lily family, consisting of a short stem surrounded by fleshy scale leaves or leaf bases)


Before the collapse, price of a single tulip bulbs sold for more than 10 times the annual income of a skilled craftsworker... yes, annual income!


This we call it "Bubble" was caused by the “madness of the crowd,” as coined by Charles Mackay.


Mackay concluded that crowds often behave irrationally, especially when dealing with financial markets and hence causes bubbles to occur.


Many analysts will try to justify a certain movement in the market is due to certain certain reasons. We would like to emphasize that there is nothing rational about bubbles. Rational reasons are immaterial.


So, dear readers, a wise investor once said "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" - Warren Buffett.


Be careful of the Herd Mentality.


A Satire of Tulip Mania by Jan Brueghel the Younger (ca. 1640) depicts speculators as brainless monkeys in contemporary upper-class dress. In a commentary on the economic folly, one monkey urinates on the previously valuable plants, others appear in debtor's court and one is carried to the grave. - credit to Wikipedia


Recent Posts
Archive