What causes irrational exuberance?

5 Replies

With all the talk of bubbles, I was thinking to myself, What causes irrational exuberance in people when it comes to different forms of investing??

It always leads to some bust, and yet it happens over and over again. We are mindless slaves to the dollar, aren't we!

This is nothing new. Just google for "Tulip Bulb Bubble" or "South Sea Bubble" for some older examples. Why does it happen? Some of it is greed, but mostly it's just herd mentality. "Hey so-and-so was able to buy a house in San Francisco, then he sold it 3 years later for a 100% gain!"

It's a lot easier to follow than it is to lead. Time for a gut check.

there is a wonderful book that I read some years back Extraordinary Popular Delusions & the Madness of Crowds. Truly there is an answer source for your question. We need to remember that this real estate craze was the pursuit of tulip bulbs a few hundred years back, among other crazes (hows your pet rock's value holding up? Genius) ( one bulb in Africa, shipped to holland could enable a man to buy a house in the Netherlands. Let us pause to remember the poor sailor who, standing in a captains home, ate one in the kitchen, thinking it was an onion. A sad day matey.) The laws of supply and demand are basic and still fascinating, yet it seems to be the perception of wealth attatch to the object de jour, real estate, that drives it the most. that, is my 2 cents. Im outta here.

ah I just read Juzamjedi's post.. yep got that tulip thing short n sweet. sorry redundant post. :oops:
.

Yep, it's kind of a "if I don't get one now I'll never be able to" feeling. We don't want to be left out. We all want the easy profits. Most people who are the victims of scams are "smart" enough, but they get caught up in the moment, thinking that "I'm special".

My wife and I were discussing this the other night when the news show was talking about the plane crash in Toronto. I think it was John Nance (pilot and author) who was discussing why the pilots would have tried to land in those conditions. He referred to the pilot phenomenon known as "gotta get home-itis". He mentioned the crash in Little Rock a few years ago, late night, long work day and the pilots could literally see the airport at the hotel. They tried to land in conditions that didin't justify it because they didn't want to fly back to Dallas. Heck those guys were trained professionals doing what they do every day. It killed one of the pilots (Air Force Academy grad) plus some passengers.

Whenever you see a "real deal" it's best to think:

Why is this being offered to me?
What can I lose if I do it?
What can I lose if I don't do it?
If it's taking a "bigger fool" to bail out the guy in front of me, how much bigger must the next fool be?

all cash

I 41 think that
Will Rogers (albeit 50+ years ago) was WAY ahead of his time?

1-One of his favorite sayings was "Econmists have predicted 23 of the last 2 recessions & 5 of a the last 1 depressions?" Seems like some of the posters to this thread are more worried about the "bubble" than "reality"?

2-Another even more famous Will Rogers Quote: "Funny thing about Real Estate, I ain't met a man yet that could make more of it; & even if he could, where do Ya su'pose he'd PUT it?"(obviously he had great vision, just not enough to see the mountain tops moved into the valleys for shopping centers, condos, & Subdivisions, & the same here{FL} thru "mitigation"{read=where swamps R dredged 4 new W/F properties}
Punchline of his quote...Location/Location/Location(&how often Have You all had THAT 1 drilled into Your heads?)?

3-The "bubble" is based on What?
Percieved Value?
(or possibly more IMPORTANTLY Potential LOSS in other "investments"?)
IN Reality{the place I choose to live & work) the "bubble" is based on D-E-M-A-N-D
Here in Florida, that IS "off the chart". Many county's are actually REDUCING Millage rates, as property values have risen so drastically that their coffers are full beyond any previous records...Can You beleive Government NOT being "greedy"..they can't SPEND any more!
Why is demand so great in Florida?
EVERYBODY wants to live here!
Simple answer.
Complicated view...everybody moves INTO the state in South/Central Florida & pays an arm & a leg for a LITTLE Lot & a LITTLE House...then they get sick of all the nosey neighbors....& then they move 2 NORTH Florida.
IF there is a "bubble"(I hear the term used by stock portfolio managers more than anyone else....hmmm?) here in Florida, don't YOU think it would have "popped"
After:
Bonnie,
Charley,
Frances,
Jeanne,
Ivan,
a RECORD number of Shark Attacks (last year)
a RECORD number of Lightning Strikes (& Deaths) (last year)
a RECORD number of GATOR Attacks (& Deaths) (last year)
& a RECORD number of Tornado Deaths
all mixed in w/3 more tropical depressions, (last year)
& 1 hurricane, 2 Tropical Storms, & 2 Tropical Depressions ALL making a BEAD on Pensacola so far THIS Year?

Reality check....Property Values have gone UP 33%(median) State Wide LAST Year in the middle of ALL of that hullabelew?
Marion County (NO Waterfront Property, "horse country", & home of Ocala) the median was 43%?!?!?!
ALL W/F properties in FL are appreciating at a rate of 50%+ per year from Pensacola 2 JacKsonville(read=ANYTHING on the Gulf/Keys/Atlantic/ICW)...why do You suppose that is?
Because DEMAND drives prices;
I've watched & Participated in the marketplace here.
I practice what I preach.
Borrow $$ 4 2 things & 2 things ONLY;
A-Your primary residence, &
B-to make MORE money than the Interest on that which You borrow.

4-for the folks stuck in the "stinking thinking"(eg:how mich Bigger of a "schmuck" than me will the next guy have 2B?)mode....I have a thought 4U....

It(this thread) was/is titled "Investor Psychology".
You Are an "investor" by Participating
and an Observer otherise;

If You (anyone posting or reading this thread) isn't gettting at the VERY LEAST 18% ROI...U need 2 call me;

I've been borrowing $ @ 10-18% via private lenders 4 years & have made a small(well, maybe not so small) fortune IN This state investing in pre-development lots (which have appreciated as much as 250% in < 12 months), Commercial Property(s) which have appreciated 100% in < 12 months (w/a rehab loan), W/F properties(raw land) that appreciated 85% in < 1 year....
oh, & by the way....properties that DIDN'T appreciate sufficiently 2 cover my investment & % on the $$?
None

I've watched our own home here in N.Fla (1650sqftStick Built Frame 4b/2.5Ba rise since 1995 from $54k to now valued (appraisal last week for another re-fi) @ $298k on 5 acres; we've put on a new roof, upgraded A/C units, & done some BASIC landscaping...nothing more;

An adjacent 7.5 acres purchased same time...raw land...1.4K per acre...then, $14.5 k value now(at least, several comps locally exceed this figure...hmmmm?)

Folks, if You ARE investors & You feel like U aren't getting enough ROI....give me a call.
I can get You 10-18% if U want to be conservative & just do 1st mortgages, or You can make an absolute fortune...InVesTing in Dirt down here?

FYI, even during the "bust" in Houston in the '80's, Dallas in the '90's, & Calif. during the "dotcom bust", Those who HELD rather than Panicking...guess what...they made $$?

Can we say that about the stock market?
IRA's?
401K's?
Keoughs?
Mutual Funds?
IPO's?

If 4% is a satisfactory ROI, U haven't been to the gas pumps lately;
If anybody can name 1 of the other above investment avenues that is MORE Secure than R/E....please let me know which it is?

Nothing's been the same since 9/11/2001....
MOST folks know that Dirt & Gold/Platninum R the way to go.
Dirt in High demand locations....well, now U know the rest of the story?

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