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5 of 5 people found the following review helpful
5.0 out of 5 stars Tales of Great Greed and Fear, and Market Manipulation, 29 Aug 2004
Donald Mitchell "Jesus Loves You!" (Thanks for Providing My Reviews over 124,000 Helpful Votes Globally) - See all my reviews
The stories in this book will have appeal as long as human beings exhibit great greed and fear in their investing. Those traits will encourage people to manipulate those emotions to their advantage, and these tales will recur with new investments every few years or so. Some few winners will garner long-term wealth while most will lose their seats in this game of financial musical chairs . . . known as speculating in endless opportunity. Fast success draws attention, which draws new investors, which creates more fast success. The price takes off like a rocket ship to eventually crash to earth when it runs out of the fuel of optimism and greed.
No one can hope to be a successful investor without absorbing the stories of these timeless follies.
You will find in this book three sections from Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay in 1841, and Confusion de Confusion by Joseph de la Vega from 1680. The Mackay material describes the almost simultaneous Mississippi Scheme in France and the South Sea Bubble in England, as well as the earlier speculation in tulips in the Netherlands. Confusion de Confusion is a translation from the Spanish about speculation in Amersterdam in the securities of the Dutch East and West India Companies.
The Mississippi scheme involved the use of private bank notes to improve the French debt and currency that were eventually tied into investments in a colony in Mississippi. John Law, a Scotsman, was the originator of the scheme, which grew out of control when the French printed too much money and the Mississippi colony foundered. You can read more about this in the recent book, The Millionaire. The basic facts are more easily absorbed, however, in this volume. Following along shortly thereafter, the English began to speculate in stock in a monopoly to develop trade with the Spanish, also tied to reducing public debt. That became the South Sea bubble and the speculation was encouraged by the early success of stock investors in the Mississippi scheme in France. Tulipomania is considered the best of the financial parts of this book, and recounts the amazing heights that a single tulip bulb could bring (with a famous table of the buying power of a florin at thta time) and the problems encountered, such as when a sailor mistook a rare bulb for an onion and had it for his lunch! These three essays are about psychology, and do not go into the market details too much. The descriptions about how the government dealt with these disasters provide relevant information for regulators.
In Confusion de Confusion, there are four dialogues about how bull and bear markets can be manipulated and the consequences, in the context of speculation in hopes of gain for the new colonies and trade. These dialogues are superb examinations of how markets actually work, and will be an illumination to the new investor of who she or he may be up against. The lesson: Be sure you know the rules and think about how they could be used against you.
This book is greatly improved by a series of essays. One is by Peter L. Bernstein in which he makes comparisons of the current markets to these early essays. Herman Kellenberg's introduction explains many of the details of the Amsterdam markets very well to make the de la Vega material more accessible. I especially liked the introduction by Martin S. Fridson in which he points out some of the errors and hyperbole in the Mackay material, and puts that work into a current context. Without these essays, I would simply encourage you to seek out the originals instead of this book. But these modern essays will add a great deal to your understanding.
Mackay's book was reportedly a favorite of Bernard Baruch's, which has helped its popularity enormously over the last 70 years. After you read this book, I do recommend that you read the entire book. Although it is a tough slog in places, you will come away with a much better understanding of crowd psychology than these three sections alone will give you.
The fundamental mechanism for each of these mania is that a new investment opportunity arises that seems to offer great potential. No one is quite sure what the future will hold, and optimism takes over. The price starts to rise, and that attracts attention. As more people invest, the market rises more. That draws more attention and investors. This continues until either pessimism starts to balance excess optimism, or the market simply runs out of new investors. It takes ever more money to create the same growth, so the market eventually has to fall. Along the way, a few are smart and take out their money. The rest lose.
This mechanism occurs about once a decade. Some of the recent examples are Internet stocks in the 90s, biotechnology stocks in the 80s, the Nifty Fifty in the 70s, the conglomerates in the 60s, electronics companies in the 50s, radio companies in the 20s, utility trusts around 1900, railroads in the 1880s, and so forth back in time. The key lesson: If you think a mania will form, do your buying and selling very early in the game or ignore the game altogether and go into safe securities. Either one will work. If you want to split your money in half with half for speculation and half for safety, that would give you the best and safest route. Most people do not have the emotional discipline to sell in time, so it is dangerous to play. The markets will fall many times faster than they rose, so the time to escape is on the way up.
I hope you will buy and read this book, and share it with your children when they start to invest.
When you are done with the book, I also hope you will also consider where else mania take over. These occur in consumption patterns (not unlike tulip bulbs), activities (remember disco?), businesses (franchised door-to-door selling), and entertainment (quiz shows will come and go many times). Be sure you watch out for your exposure to these mania as well. Avoiding wastes of time and resources are an important part of achieving true growth.
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5.0 out of 5 stars A good explanation of the herd mentality, 3 Jun 2013
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Excellent read and an excellent companion while you play the markets. A good explanation of the herd mentality and how the people in markets work. very enlightening
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1 of 2 people found the following review helpful
5.0 out of 5 stars Cautionary tales of investor 'herding' syndrome, 21 July 2007
DOPPLEGANGER (TEDDY B) - See all my reviews
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Yes,I endorse everything said in the reviews above and on the book cover and the Financial Times were spot on in choosing it as Two of the Ten Best Books Ever Written on Investment.

However, potential readers might first consider that it does deal with the two scandals in the writing styles of previous times which makes it difficult to fast read.
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4 of 7 people found the following review helpful
5.0 out of 5 stars Skimming the cream at fat profit, 20 Mar 2006
Jens Guld (Esbjerg, Denmark) - See all my reviews
I may be a bit slanderous above for I have not actually seen "Confusions and Delusions". However I know the original well enough having as a hobby translated the story of the Tulip Craze into Danish and being in the middle of the South Sea Bubble.
If the editors have added a good foreword and some very solid footnotes I shall be happy to eat crow (I have some problems translating the mechanichs of the South Sea shenanigans, I think because the author did not quite understand the technicalities himself) but if not, then they have taken three public domain texts (you can find them at and reissued them at fat profit.
The rest of the original book has not stood the test of time. Charles Mackay was very much a Voltairean. Believed in human reason and all that and never saw deeper. Take the section about the witch craze. It was not motivated by unreason or caused by monks whose sex life had turned unwholesome. Capitalism was entering the countryside shouldering aside the old ways. This led to peasants' revolts, which had to be prevented. There were no standing armies in those days, so they used witch hunts instead. As soon as there were standing armies witch hunters were given very short shrift by the authorities, for witch hunts were a real pain also for the rulers.
Still, the 3 texts here are must-reads and if you don't want to read them on a computer screen gratis a paper version is necessary.
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0 of 1 people found the following review helpful
5.0 out of 5 stars A Parable for Today, 3 Dec 1997
By A Customer
This book has been around for over 100 years. The lessons of those events is applicable to the present time. I highly recommend it.
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