Mass Psychology Supports the Pricey Stock Market<br />In an annual outlook piece on January 1, for example, described “fantastic illusions”<br />that were spurring “the most reckless stock market speculation.” The article said it was possible that, before long, “the bubble bursts.”<br />The notion that investors were laboring under “fantastic illusions” and had bid up prices to unsupportable levels appeared in many places.<br />The database also shows a sudden increase in 1928,<br />and again in 1929, of references to “tulipomania” — the bubble in tulip prices in Amsterdam that crashed in the 1630s.<br />After the ratio’s peak in 1929, real inflation-corrected stock prices in the United States<br />lost four-fifths of their value by 1932, the biggest crash in the market’s history.<br />When dot-com stock prices started to decline in 2000, people were already primed to<br />rethink their assumptions about the wisdom of holding shares in internet companies.<br />That was the observation of John Maynard Keynes, who suggested<br />that investors do not actually make money by picking the best companies, but by picking stocks that waves of other traders will want to buy.
