Extraordinary delusions repeating
Peter McGahan
Monday 10th March, 2025.
OH, I really hoped I wouldn’t have to write about him anymore, but he’s back and I’ve written about him twice in three weeks. Today I’m being asked about Trump’s new plan for building a crypto strategic reserve and I sigh so long a sigh I’m a raisin. At least Father Ted, or the muppets was supposed to be funny. I’ll maybe cover it next week, but I will just cover him and the freakshow charades which he participates in, with one book which you should read: “Extraordinary Popular Delusions and the Madness of Crowds”.
Musk is doing for Tesla, what Trump does for integrity. It’s a calamity, but those who have made decisions to support them may try and stick by their confirmation bias, until they can no longer. That’s because failed predictions rarely deter a believer because they just rationalise it. It's about creating the belief. Remember that. That’s what the book explains about recurring themes in history and no ‘this time it's different’ doesn’t apply. It was written in 1841. Further long sigh.
By studying past delusions, you may be more likely to spot the next one, even if you are already in it.
One of the chapters covers ‘Popular Admiration of Great Thieves’. The media glorifies the outlaws and then society excuses their corruption because of tribal loyalty (belief). Ring a bell from today? They know this. That becomes the strategy. Societies abandon logic when under stress reverting to magical thinking. Lesson - we keep glorifying financial criminals, romanticising them, instead of learning from their victims. They are in front of you everywhere today, live on stage with autocues.
In another chapter called ‘Witchmania’, we see that when it all goes wrong, they look for scapegoats, often turning on the vulnerable, the poor, the ‘benefit cheats’, the outsiders, not the non-tax paying corporations, or the banks or creators of the problems). Lesson – blaming individuals or sectors for financial crises often distracts from the real deeper structural issues.
In the coverage of the ‘Alchymists’ in chapter four, we learn how the elite of the times can easily exploit mass gullibility to maintain control and profit. Society is often attracted to promises of quick wealth without effort, like multi-level marketing, crypto pump and dump schemes and the Alchymists did just that, paving the way for many to follow in years to come. Lesson: No magic formula for getting wealthy. Cue, Youtubers and 'influencers' selling courses.
In the ‘Mississippi scheme’ chapter, John Law created a government backed economic bubble in France based on American land riches. It collapsed, ruining the French economy and many people’s lives. Lesson – blind trust.
The ‘South Sea’ convinced people on a bubble that trade with South America would make them rich overnight. They bought shares without understanding any economic fundamentals (ring a bell?) and that bubble really popped, ruining lives again. Lesson – following the fear of missing out blindly.
In the ‘Tulipmania’ chapter, people valued tulip bulbs more than good houses. Until they weren’t. Lesson - it’s a choice of the tense of the verb: When an asset has risen in price, it isn’t rising. It has risen and can do the opposite – very quickly.
In the ‘Popular Follies of Great Cities’ chapter, cities followed mass mental trends which people followed blindly and irrationally. Today, sensationalism drives media consumption, and because 'news' is often a centralised cesspit, rather than independent journalism which challenges the status quo, it’s a herd mentality. Lesson - following the crowd leads to disaster. Read more of this!
'The Crusades' chapter showed how they fuelled religious divide and a promise of rewards of land and wealth and …salvation (ring a bell?). Investors invested fortunes to fund expeditions expecting riches. In the end, only a few benefitted, most lost everything. Lesson - investing in ideological movements rather than sound business models leads to financial ruin – always.
In the ‘Haunted Houses’ chapter, people paid way more for a house because they were told it was haunted. It was a craze, but they really believed it. And the man who was trying to sell his unloved, empty, dilapidated empty house? Well, he was delighted. There is a psychological effect of suggestion – people experience what they expect to see. Lesson – emotions can have you speculating and ignoring economic fundamentals.
Take your time to make decisions.
If you have a financial question, please call 01872 222422 or email info@wwfp.net
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
