“Unfortunately, it is quite possible to read about Dutchmen thinking that the world had an infinite hunger for tulips, and then go right out and buy some very snazzy computer stock because the world has an infinite hunger for computers.” Wrote Adam Smith in The Money Game.
We met Adam Smith in our previous post. He is not the author of The Wealth of Nations, but used “Adam Smith” as his pseudonym.
Every market cycle, whenever there is something new, we hear such stories. Overtime there are justifications given for the present valuations by extrapolating the current demand into an infinite future.
Read the chapter “On Valuations” in the book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”.
“The four most dangerous words in investing are: ‘this time it’s different’.”: Sir John Templeton said. Every time the justification of current high valuations or even the low valuations comes from such thinking that this time it’s different from whatever happened in the past. After all, in 17th century Holland, when people were chasing tulip bulbs, these were not computers or internet websites.
Whatever the logic, we always have a story. We always have a rationalisation.
#RidingTheRollerCoaster – 192