FINANCIAL SPECULATIONS
David Dreman in his book on Contrarian Investment Strategies includes a chapter on the psychological aspects of investing and speculation created by a herd mentality.
He identifies four principles learned from financial speculations.
1. AN IRRESITABLE IMAGE OF INSTANT WEALTH DRAWS THE FINANCIAL CROWD TOGETHER.
2. A SOCIAL REALITY IS CREATED THAT BLINDS PEOPLE TO THE DANGERS OF THE MANIA.
3. THE MAGIC LANTERN SUDDENLY CHANGES AND ANXIETY REPLACES OVERCONFIDENCE.
4. WE DO NOT LEARN FROM THE PAST. THINGS DO SEEM VERY DIFFERENT EACH TIME, ALTHOUGH IN FACT EACH SET OF CIRCUMSTANCES IS REMARKABLY SIMILAR TO THE LAST.
Don't follow the crowd.
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