The Madness of Mobs

Be careful around crowds.

Stadium Crowd. Photo: Abdul Rahman. Source: FlikrCC-BY-2.0

Especially if you want better investment returns. There are times when investment manias sweep through the markets, lifting anything in a particular niche or with a particular name. The internet boom of the late ‘90s, the biotech boom of the late ‘80s, the oil boom of the ‘70s, and recent crypto-craze, where anything related to block-chain cryptography was granted almost instant unicorn status. These levels rarely last.

Conversely the mob can turn on sound stocks and depress their valuations just because they’re in the wrong neighborhood. During the BP oil spill in the Gulf of Mexico, a publicly traded trust based on Alaskan North Slope oil saw its price tumble simply because it had the wrong ticker. Similarly, a sub-prime auto-loan company fell 90% during the financial crisis because it made sub-prime car loans. Their collateral didn’t have problems. The company just worked in the wrong sector.

Mob psychology has been with us for centuries. In Shakespeare’s Julius Caesar, Marc Anthony stirs up the crowd against the conspiracy that murdered Caesar. In the next scene, as a mob swarms through the streets, they come upon a man with the same name as one of the conspirators: Cinna. “Tear him to pieces,” they rage. “He’s a conspirator!” As the throng carries Cinna away, he shouts in protest, “But I’m not a conspirator, I’m Cinna the Poet!” “Tear him for his lousy poetry,” is the final response. When the hoard is out for blood, facts don’t matter.

When a crowd gets excited, watch out. What starts in enthusiasm often ends in tears. It may be feel like there’s safety in numbers, but not when you’re investing. What’s comfortable is rarely profitable, and what’s profitable is rarely comfortable.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-07-18T06:10:36+00:00July 18th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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