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A Random Walk Down Wall Street: Chapter 3
The madness of the crowd can be truly spectacular. It seems that people’s memories are so short that speculative crazes seem so isolated from the lessons of history.
By 1990s, institutions accounted for more than 90 percent of the trading volume on the New York Stock Exchange. More and more people put their money under the care of professional portfolio managers—those who run the large pension and retirement funds, mutual funds and investment counseling organizations.
No matter the case of 1959 “New Era” of Growth-Stock or the new idea came up with the conglomerate all draw the investors fell into the New-issue craze. Ostensibly, the conglomerate would achieve higher sales and earnings than would have been possible for the independent entities alone. The acquisition process itself could be made to produce growth in earnings per share. The combination of the popular of high tech and acquisition make Baker Candy company wealth off with the electronics firm. Same situation came when new performance comes to the market as well as the concept company. “Since we hear stories early, we can figure enough people will be hearing it in the next few days to give the stock a bounce, even if the story doesn’t prove out”. The reasons why these companies failed were varied: too rapid expansion, too much debt, loss of management control and so on. These companies were run by executives who were primarily promoters, not sharp-penciled operating managers.
The lessons of market history of the booms are clear. New styles and fashions in investors’ evaluations of securities can and often do play a critical role in the pricing of securities. The stock market at times conforms well to the castle-in-the-air theory that person’s prospective and willing to pay for a certain stock means a lot. For this reason the game of investing can be extremely dangerous. And another lesson that cries out for attention is that investors should be very wary...
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