Investing 1.0—Blind Faith and Speculation

Abstract

The early days of stock investing were characterized by little more than speculative guesses about whether stock prices were about to go up or go down—a fertile field for bubbles, including the South Sea Bubble, Tulipmania, the British Bicycle Bubble, and the Roaring Twenties. The enthusiastic purchase of dubious investments is encouraged by the Greater Fool Theory: “Buy something at an inflated price with the hope that you can sell it to an even bigger fool at an even higher price.” A focus on predicting short-term price movements also encourages Ponzi schemes and market manipulation such as the “Radio Pool” in the 1920s that pumped and dumped RCA stock.