h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

The economist Keynes once said that the stock market is just like a beauty contest. You have to try to pick the most beautiful contestants from all those taking part.

However, you only win if the ones that you pick are the same as the average of all the other people playing. But, at the same time, everyone else who is playing is trying to guess what you are going to pick too!

This analogy goes some way towards explaining the recent bubble in internet stocks. The reason why the value of these stocks have gone up so much is that everyone thinks they are going to go up, therefore they do.

So, I reckon making money on the stock market has more to do with mob psychology than it does with gambling.

Apparently, the .com bubble can also be further explained by the fact that the "sophisticated investers" who manage funds etc. are under pressure to have certain volumes of securities in their funds which are linked to the stock which are trading currently. Thus the less sophisticated investors who have all decided that the internet is a great thing and are all trading their investments are forcing fund managers to invest too...

So much for the power of the people...

At least it said that in the FT so it must be true.

It all seems so ephemeral these days. The Stock Market seems to be based on rumour and vapour-ware. I wonder what the average age of a trader is these days? It just seems to me that the economy seems to be more and more dependent on less and less solid things.

Sorry, just a random bunch of ramblings but I can't help feeling it will all end in tears (Probably exacerbated by automated computer trading).

If you want to be put off from buying any .com stocks check out

http://www.itulip.com

It shows how the stock market has behaved exactly as it is now in response to numerous technological breakthroughs over the last 100 years. And, how every one of these fads have attracted lots of investors money, which is then lost when the bubble bursts.

Degz

An excellent reference source, thank you At least now I know its not just me who see's this as a modern day South Sea bubble.

iTulip, a good name for a company showing up how the stock market bubbles.

Now how much were tulip bulbs going for in 1600's

Tulips. Funny. I read that in 1600's in... Denmark, was it(?) that the prices of tulips got so out of hand, that one bulb could sell for as much as 100,000 Dollars by today's standards. As soon as people realized that money didn't grow on trees, but rather on flowers, the economy wilted.