Thursday, May 19, 2011

Internet Bubble 2.0?

The big rise of LinkedIn shares at its IPO provides another good excuse to paste some wise excerpts from Howard Marks’ book, The Most Important Thing.

The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing—these factors are near universal. Thus they have a profound collective impact on most investors and most markets. The result is mistakes, and those mistakes are frequent, widespread and recurring.

…the process of investing requires a strong dose of disbelief. . . . Inadequate skepticism contributes to investment losses. Time and time again, the postmortems of financial debacles include two classic phrases: “It was too good to be true” and “What were they thinking?"


As Warren Buffett told Congress on June 2, 2010, “Rising prices are a narcotic that affects the reasoning power up and down the line.”

Time and time again, the combination of pressure to conform and the desire to get rich causes people to drop their independence and skepticism, overcome their innate risk aversion and believe things that don’t make sense.

People who might be perfectly happy with their lot in isolation become miserable when they see others do better. In the world of investing, most people find it terribly hard to sit by and watch while others make more money than they do.