Investment Books Reviews #3: - Extraordinary Popular Delusions and the Madness of Crowds

By: Stephen Todd

This book was chosen by the Financial Times as one of the ten best books ever written on investment - and with good reason - it’s a timeless classic!

A Classic Insight into Crowd Psychology

First published in 1841, Extraordinary Popular Delusions and the Madness of Crowds is often cited, as the best book ever written about market psychology.

Today, it is one of the most widely read books to warn investors of stock market bubbles and busts. The version published by Wiley also includes Joseph de la Vega’s 1688 classic, Confusion de Confusions - along the same subject lines.

Extraordinary Popular Delusions and the Madness of Crowds, explores the sometimes hilarious - and sometimes devastating impact of crowd behavior- and trading greed and fear on financial markets.

This book clearly shows us how crowd psychology has never changed - and how greed and fear are always present.

This book gives us three great examples - such as:

. The tulip mania of 1634 - when tulips actually traded at a higher price than gold!

. The South Sea bubble.

. The Mississippi madness.

These three examples confirm that greed and fear have always been the driving forces of financial markets - and furthermore, that being sensible and clever is no defense against the allure of a popular scheme, when big money is being made.

Think we don’t make the same mistakes today? - Think again!

Just think back to the huge interest in, and the price rises and falls during the Dot Com frenzy of speculation in the 1990’s.

Lessons to be learned

The moral of popular manias is - beware of frenzied speculation - wherever it occurs.

When the next stock market bubble comes along, (and it will) investors are advised to recall the fate of investors of an earlier time - and avoid their misfortunes.

Really, all investors should read this book - and critical acclaim for it is almost universal - and here are just a couple of comments:

This is the most important book ever written about crowd psychology and, by extension, about financial markets. A serious student of the markets and even anyone interested in the extremes of human behavior should read this book! - Ron Insana, CNBC.

You will see between its staid lines (written in ye olde English and as ponderable as Buddha’s navel) that, despite what the media says, nothing really important has changed in the financial markets in centuries. - Kenneth L. Fisher, Forbes.

Destructive Emotions

Markets are still driven by the emotions of greed and fear today - just as they were in yesteryear - and this book graphically illustrates the point.

This book covers much more than just the financial markets - it covers a whole gambit of situations, where the crowd makes stupid investments - based on their emotions, rather than logic.

While this is not a book that tells you how to trade - it does illustrate more clearly than any other book, how stupid investors are - when they submit to their emotions.

Stand Away from the Crowd for Financial Success!

This book is essentially a lesson in trading discipline - and how standing aside from the crowd, will make you a successful investor.

Read it - and absorb its timeless wisdom!

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