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Chapter 4. Mood, Optimism, and Investing > Rampant Optimism and Pessimism

Rampant Optimism and Pessimism

When a few investors get optimistic about a stock, they push up the price. When many investors get optimistic, the entire market is affected. Consider what the mood must have been like when this front page column ran in a major newspaper: “There is nothing now to be foreseen which can prevent the United States from enjoying an era of business prosperity which is entirely without equal in the pages of trade history.”[12] This report gives the impression of a very optimistic time. Although it sounds like the optimism of the 1990s, the quote is from 1925, a time of a rampant bull market that preceded the great stock market crash of 1929 and the ensuing Great Depression.

Many such articles were printed during the optimism of the 1990s. Articles and books foretold of how this economy was different—no more business cycles, technology ushers in a new era, the death of inflation, and so on. However, there were also columnists who warned of a stock bubble. Those columnists who wrote that the valuation of stocks could not possibly be justified by economic fundamentals were ignored or discounted by the optimists. Optimists don't like negative news spoiling the fun.


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