Greed and Investors

by: b_t


OK, really active this day. Well, my second post will try to tell you about how Benjamin Graham (one famously recognized as the guru of Warren Buffet, the most successful investor in our era) defined the term 'Intelligent Investors' in his book of the same title, Intelligent Investors. One book I re-read this days.

Graham, in his book, stated how intelligent here meant nothing similar to what we met in our everyday life. It has no correlation with IQ or SAT or something like that. It even has no correlation with anything like your economics class mark. Graham stated that this intelligence here is more to the character, your own character. He further stated how this is more important than merely brain's intelligence.

This statement is controversial. You see, the ones doing trading in market, whether it's forex, shares, commodity or whatever, nowadays mostly is the educated ones. The ones holding their educated certificates. And they more than eager in joining the crowd as investors. But you know, Graham earlier statement still proved to be true. Even for now when the world is flat. When real time information can be easily accessed through internet. You want the prove?? Well, this book I'm reading (Graham's Intelligent Investors) provide them.

Well then, let's begin the proving section. We begin with the most famous financial blunder. Played by our very own Sir Isaac Newton. Yes, I really mean the one who invented many excellent equations in physics field. He's someone with undisputed intellectual capability. His contribution is the foundation of today.

The story began in autumn of 1720. At that time, Sir Isaac held South Sea Company shares. FYI, South Sea was one 'hot' choice in market. In fact, maybe it's one of the most promising at that time. So, by holding em, we may expect that Sir Isaac had very good opportunity in gaining. But then, at some point, Sir Isaac saw some absolutely chaos and uncontrollable movement in the market. And somehow, he realized that this kind of phenomenon will affect the value of shares in his hands. So, he decided to place it in the market to sell them all. He then expressed how he is sure when predicting and calculating any movement, even things in outer space. But he found so much trouble in grasping the movement of the market. He gained 7000 pounds in this trade. Good one, I say.

This decision Sir Isaac made proven right. In next few days, the value of South Sea plummeted. He was saved. But then, in mere few months, market's enthusiasm came back. South Sea's price fled up to the roof. Many investors eager to buy the shares. And our Sir Isaac, ignoring his own valuation before and tempting with market's enthusiasm, decided to repurchase some of the shares. He figured at that time that he will be able to enjoy the ride and gain some more. But then, reality came to him. Instead of gain some more, Sir Isaac lost more than he gained before. He lost 20000 pounds. Disappointed, He then even went as far as prohibited anyone mentioning the word 'south sea' when near him.

OK, so, what we can take from that story?? Well, I expect that we can see the danger of greed there. How greed can lure us to the grave. Our very own grave.


b_t