Investors were ecstatic. The stock market was showing unheard-of gains, driven by a new field of endeavor that few understood, but which many believed would create a new economy of widespread wealth.
Price-earnings ratios flew out the windows. Revenues barely crawled into coffers, but rampant speculation drove stock prices higher and higher, the entire market feeding off the hopes of investors wishing to catch the rising tide of prosperity.
Sound familiar? Sound like the worldwide stock market in recent months , even the past year?
I agree it does, but in this case I was describing the European stock market in the early 1700s, a time when the plans of Scottish financier John Law and his Compagnie des Indes to develop the French territories in the Mississippi Valley sparked several years of wild stock speculation throughout the Continent.
In 1720, Law’s “Mississippi Bubble” (as it came to be called) burst, sparking what is generally accepted as the first stock market panic and forcing John Law into exile.
Mr. Law’s troubles came to my mind recently as I flipped through a copy of the Learning Annex class schedule. The Learning Annex always offers wonderful classes on subjects they don’t teach in schools but which you’ve always wanted to know a little more about.
This particular class schedule, however, seemed filled with page after page of classes for the inexperienced investor, each promising the reader a chance to catch the prosperity’s next flood tide.
I found this very disturbing. It wasn’t the classes that perturbed me; the Learning Annex was simply responding to students’ demand. It was the demand which unnerved me.
The rush toward riches these days seems as heedless of warning signs as the rush by investors in John Law’s days.
It all seems too reminiscent, too, of the 1920s when a booming stock market appeared to pave an easy road to wealth. Speculative investing, buying on margin, share prices streaking upward without regard to earnings , all the forces working today also were in action just before the market collapsed on that Black Monday in 1929, to harbinger the Great Depression.
I don’t mean to predict another great crash or depression. But I have been a journalist long enough to remember the economic ups and downs of the last 20 years, and the current lust for the stock market seems all too much like, as Yogi Berra said, “d & #233;j & #341; vu all over again.”
With each rise of the real estate market in the Seventies and, later, the Eighties, inexperienced people rushed to get agent licenses, eager for their share of the expected wealth, only to lose everything when the market crumbled like an earthen dam in an earthquake.
There were fortunes to be made in the defense industry in the 1980s , for a while. Despite warnings from economists, no one wanted to believe free-spending ways of the Reagan era would ever end. Then it did, with devastating consequences.
Call me a pessimist (optimists always call realists pessimists anyway), but I get nervous whenever large numbers of people allow themselves to be led like lemmings. As the poet Alexander Pope warned, “Fools rush in where angels fear to tread.”
The current stock market lust is all the more worrisome since so many of us , nearly half of all working adults , are already betting our retirement savings in mutual funds through workplace 401(k) programs, IRAs and the like.
Let’s be honest here: The business press is wholly responsible for putting the luster on this investment lust. Too many of us tend to hype the skyrocketing IPOs of dot-coms like MP3.com, but fail to follow through when those post-IPO stocks start falling to earth, as they all do.
I’m not alone in my fears. Washington has taken steps to caution inexperienced investors about the dangers involved in stock investing , most of which falls on deaf ears , and the SEC is investigating the questionable ways many hot stocks are promoting themselves to investors. The Washington Post reported back in 1997 that Washington was forming a “plunge protection team” to stabilize a stock market crash before it wipes out millions of investors.
As I flipped through that Learning Annex schedule, the dark recesses of my mind surged forth a long-forgotten line about Wall Street at the time of the ’29 crash, written by the Spanish poet Federico Garcia Lorca, who described The Street as that “canyon of shadow, where ambulances collected suicides whose hands were full of rings.”
