The market’s job is to make the most people look stupid most of the time.
Despite having apparently experienced the popping of the everything bubble in November of 2021, we have found ourselves back at all time highs in the general market less than 2 years later. Fate loves irony, and so we have arrived at a point that almost no one saw coming even a year ago. Many investors are baffled - if not a little pissed off.
It can be quite difficult finding equanimity in markets. Some people do yoga, meditate, while others watch the entire recorded history of the Berkshire Hathaway Annual Meetings. Personally, I like to put the current situation into its proper historical context and there’s no better way to do that than with a couple of stories of insanity in the public markets. As human beings we’re wired to make decisions that don’t easily reconcile with the modern world - and so self awareness if the first step in distancing ourselves from our worst instincts.
The closest we have come to a bona fide financial crisis since the Covid lockdowns was last year’s banking failures, notably Silicon Valley Bank (SVB). The short lived crisis was not the most remarkable development of that March Weekend. That dubious distinction rests with the good offices of one Alexander Torrenegra. Torrenegra runs an online job board for AI and machine learning. Naturally he banked with SVB.
In a rather epic Tweet Storm, Torrenegra explained his thought process of first emptying his SVB accounts of precious working capital, to then turning around on the same day and using said working capital to purchase stock in SVB. The mind boggles - to participate in bank run as an unsecured creditor is one thing, but to freely elect to buy the equity in a financial institution facing an existential crisis is quite another.
May 1901 saw the infamous ‘Northern Pacific Corner’, which precipitated one of the first stock market crashes on the NYSE. Through a mixture of now illegal market manipulations, and pure speculation, a number of railroad barons and bankers engineered a situation where two individuals both owned more that 50% of the Northern Pacific Railway.
While it’s a little hard to piece together the exact details, it appears that some stock operators were lending their shares to short sellers more than once. One of the unlucky souls that was caught short was Sam Bolton Jr, a successful brewer and politician from New York. While the broader market collapsed on May 7th, 1901 the shares of the Northern Pacific screamed from $170 to over $1000. Faced with a ruinous outstanding liability in a security that he simply couldn’t even purchase to cover, Bolton jumped head first into a vat of his own hot beer.
After the outbreak of war between Ukraine and Russia in the March of 2022, Nickel - one of Russia’s primary exports - surged 111% on the London Metals Exchange. In a series of events, that to the best of my knowledge are unprecedented, almost $4 billion worth of nickel trades were cancelled, with one Chinese speculator down almost $8 billion.
A personal favourite of mine from the fallout of the last cryptocurrency bubble (unclear whether or not we are entering another one) was the unusual story of Colorado Pastor Eli Regalado. Regalado and his wife launched INDXcoins along with their own crypto exchance in 2021, apparently on instruction from the Holy Father himself. Raising over $3 million dollars, mostly from members of his own congregation, Regalado is currently fighting fraud charges from Securities and Exchange Commission. Unfortunately most of the money is already gone. By his own admissions in a surreal YouTube video, the good Pastor stated that God commanded him to spend almost half a million dollars on renovating his own home.
Of course the stories of malfeasance, bad luck, and outright grift are to say nothing about the extraordinary price action that can play out in auction driven markets. The 1929 crash, Black Monday 1987, and 2020 all immediately come to mind. The nature of the domain is that incredible things happen all the time (I’m also reminded of oil trading a negative value in the front month futures contract in 2020).
Madness in individuals is rare; in crowds it is the rule.
If we live by the sword - that is to say that we succeed by exploiting irrationality brought on by the madness of crowds - then we are also at its mercy from time to time. Finding peace amongst the chaos of the general market is to accept it, and try to divorce one’s self from it.
Larry.