A Random Walk Down Wall Street – Burton Malkiel
Highly recommended reading of first three chapters, Firm Foundations and Castles in the air, Madness of the Crowds, Stock Valuations from Sixties through Nineties. Can save you a lot of money in life.
While a value investor may never subscribe to dart throwing monkey business or indexing approach in latter half of the book, above chapters are, in my opinion, well packed.
While you may have come across mania and fixation of crowds such as Tulip Mania in Holland, Florida real estate craze wherein 1/3rd of population turned to real estate profession, South sea bubble, Conglomerate boom, Nifty Fifty madness, Biotech, Internet, Real Estate, you’d hope that at least similar mania would no rerun. Real estate is a recurring theme. You’d believe that a decade long depression after Tulip idée fixe that caused severe damage to Dutch economy, fact that people would exchange their house, factory, farm in exchange for a single flower and subsequent aftermath would not erase from the memory of world. Not quite so. Our memories are really short lived more so as a crowd. As Gustave Le Bon noted that in crowds it stupidity and not mother wit that is accumulated. China fell for the same trap with Lycoris Plant as recent as 1980s.Value of a small plant went as high as 300 years annual salary, of course there had to be a wake up when half the city grew Lycoris. They seem to be drunk on a cocktail made from Lethe. (http://en.wikipedia.org/wiki/Lethe)
You’ll be amazed to know of a fact in next statement. Given that United States economy has always been bigger than Japanese, at least in 20th century. In terms of acreage USA is 26 times the size of Japan. Population wise its been twice the size. In 1990 value of real estate in Tokyo alone exceeded that of whole United States or about 20% of global wealth. Japan could have sold Tokyo in exchange of all United States. 27 year Nikkie graph below illustrates that every market including dalal-street can lay an egg and financial laws of gravity know no boundaries of race or region.
|Japanese have been paying for over two decades|