Sunday, May 27, 2007

Nattering nabobs of negativity.

Yep, that's me. A nattering nabob. The funny thing about bubbles is that the positive glow increases to absolutely blinding just before the crash. Nabobs seem more and more irrelevant as the bubble continues to expand. Everyone in the bubble seems to be getting rich, and the guy standing outside the bubble, isn't. Why should they listen to him?

I had a friend tell me, during the height of the Nasdaq boom, that she'd had a friend advise her to buy Cisco Systems early on, and that the stock had gone up 1000's of percent, and that she was -- at least on paper -- pretty wealthy.

I didn't know anything about the Nasdaq, only that it was getting pretty high. But all I needed to hear was the phrase "gone up 1000's %."

"Sell! Now. The minute you get home, call your broker and sell."

She told me all the reasons, all the rationalizations, why she wasn't going to do that.

I repeated. "Sell. Now."

Other than going over and shaking her, I couldn't have been firmer. I don't know if this happened when the Nasdaq was 3500, or 4000, or 4500, or at the height. It DOESN'T matter. She had increased her wealth by a huge amount.

But there's the rub. Anyone who has watched their stock go up that much isn't going to quit.

With housing starts dropping 55% in the first four months of the year, you'd think that would send a shiver of fear throughout Bend, especially in any trade dealing with building. But what I hear, over and over again, is "It won't affect me, because......" And you can fill in the reason.

Over on the BendBubble2 blog, I used the word denial.

People tend to find reasons why it won't happen to them. Houses may go down in the country over all, but not in My town. Houses may go down in my town over all, but not in My part of town. Houses in my part of town may go down over all, but not My house.

I'm doing it, too. Read my message from yesterday. I think I'm right, but there is a little niggling doubt in the back of my mind.

The other thing that happens is that people misread their own motivations. How can that be? Who knows better than oneself what one's own motivations are?

Actually, I think very few people fully understand their own motivations. When sports cards were at their height, I tried to warn people that I thought the values couldn't hold up, that exponential growth meant that in not too many more years, sports cards would be worth more than the gross national product, etc. And just about everyone said, "Doesn't matter. I love sports cards. I'd collect them if they weren't worth a thing."

When sports cards prices collapsed, about 95% of the collectors quit. And unfortunately, most of the 5% who stayed have deluded themselves into believing that they can still make money. When I started in cards, you could barely find them. Here and there in the grocery markets, gathering dust. That was the REAL level of interest by PURE collectors.

Even then, most collectors convinced themselves they quit because, 1.) it got too expensive, and 2.) there were too many brands. But, how does that keep you from collecting one brand? And how does that keep you from collecting cheaper brands?

I won't go through the whole scenario with pogs, beanie babies, comics, magic, non-sports cards, pokemon, etc. -- except to say that at the peak of each of these bubbles, not one customer would admit he or she was in it for any other reason than pure love.

Somehow that pure love disappeared when the bubble popped.

Denial and self-delusion. Of course they find other reasons for why they quit. To admit to being party to the bubble is admit to being greedy or a fool or being a follower. No one wants to admit to that.

I'll admit to it. At least for sports cards and comics. With the other bubbles, I'd learned my lessons.

Yet, I can feel the excitement of seeing my house go up in value. I can feel the temptation to borrow off that value. I can see that my business is benefiting from the boom, but I can also try to delude myself into thinking that it doesn't having anything to do with the boom and a crash won't hurt me.

Having been through enough bubbles, I have built in a safety factor. I know it's going to hurt.

Meanwhile, it still kind of fun to watch.

It's just human nature.

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