TIP673: A SHORT HISTORY OF FINANCIAL EUPHORIA

W/ KYLE GRIEVE

02 November 2024

On today’s episode, Kyle Grieve discusses the anatomy of a speculative event, why it’s so easy for people to take part in them, and why these events are unlikely to stop in the future; a few major euphoric episodes from history outlined in the book, three more recent bubbles that most listeners lived though, why the rise in IPOs are often the result of mini bubbles, six primary takeaways from the book to help protect yourself from investing in bubbles, and a whole lot more!

Subscribe through iTunes
Subscribe through Castbox
Subscribe through Spotify
Subscribe through Youtube

SUBSCRIBE

Subscribe through iTunes
Subscribe through Castbox
Subscribe through Spotify
Subscribe through Youtube

IN THIS EPISODE, YOU’LL LEARN:

  • The blueprint of a speculative event
  • A contrast of risk tolerance between Benjamin Graham and Warren Buffet
  • Why we fool ourselves into following people with money who don’t deserve to be followed
  • A detailed account of Tulipomania and the story of the $80,000 price tag for a Tulip
  • How a convicted criminal helped mastermind one of the most giant bubbles in history
  • The importance of due diligence in assisting investors to avoid bubbles
  • How bubbles feed on themselves, opening pathways for other businesses to take advantage of the euphoria
  • A few of the precipitating factors that caused the great depression and the damage it created
  • Breaking down the “Dot-com” bubble, the Great Financial Crisis, and post Covid-19 euphoria
  • Why investors should take responsibility for their wins and their losses
  • And so much more!

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Kyle Grieve: Building long term wealth relies on the ability to compound wealth for decades to come. It doesn’t really matter if you’re trying to track the index or outperform it. If you want to generate wealth rather than destroy it, you must reach the finish line while also maintaining capital along the way.

[00:00:17] Kyle Grieve: If we use inversion to look at one of the most surefire ways to prevent ourselves from crossing the finish line, I think avoiding bubbles will be near the top. Now, this is why I’ve always been fascinated with John Kenneth Galbraith’s excellent book, A Short History of Financial Euphoria. The book just focuses on a few very, very simple objectives.

[00:00:37] Kyle Grieve: Number one, it tells you what a euphoric episode looks like in quite a bit of detail. Number two, it goes over several euphoric episodes in history using John Kenneth Galbraith’s own framework. And number three, it just highlights many of the biases that are embedded in our own psychology that basically guarantee the continuation of euphoric episodes into the future.

[00:00:58] Kyle Grieve: Now, while I was reviewing my takeaways from the book, the concept that I just couldn’t stop thinking about was risk. Mainly, risk is always present and the market just fools us all into thinking that risk is absent during these times of peak euphoria. Now, this feature of open markets shows me that we must intentionally think about risk at the exact time when we don’t actually want to spend any time thinking about it.

[00:01:22] Kyle Grieve: Putting myself in the investor’s shoes during events like Tulipomania, the South Sea company bubble. Or the Banque Royale. I can’t help but think about the difficulty many market participants had in not being invested in the bubbles as they started forming. The FOMO involved back then is the exact same type of FOMO that we get in today’s events, such as GameStop.

[00:01:43] Kyle Grieve: Sure. Some investors in GameStop did it out of their desire to stick it to wall street. But I think that was probably the minority. I would say that many investors in GameStop bought the stock simply because they thought the stock price will go up and that they didn’t want to miss out on any of that action.

[00:01:59] Kyle Grieve: This is the same type of behavior that has existed now for over three centuries, and I bet you will continue to see it exist as long as the stock market functions. But as the book outlines, participating in these bubbles often leads to immense amounts of pain, both monetarily speaking and psychologically speaking.

[00:02:16] Kyle Grieve: So any investor owes it to themselves to understand how bubbles work. Why they form and the bias behind participants. This is one of the best ways to help you get to the finish line. Even if you won’t cross that finish line for multiple decades into the future. So if you were the type of investor who has been burned by bubble like assets before, or just want to be best prepared for the euphoric episodes in the future, you’ll get a lot out of this episode.

[00:02:40] Kyle Grieve: Now let’s get right into this week’s episode.

HELP US OUT!

Help us reach new listeners by leaving us a rating and review on Spotify! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it!

BOOKS AND RESOURCES

NEW TO THE SHOW?

SPONSORS

Support our free podcast by supporting our sponsors:

Disclosure: The Investor’s Podcast Network is an Amazon Associate. We may earn commission from qualifying purchases made through our affiliate links.

CONNECT WITH KYLE

PROMOTIONS

Check out our latest offer for all The Investor’s Podcast Network listeners!

WSB + BFF + RWH Promotions

The Intrinsic Value Newsletter