| BUSINESSWEEK ONLINE : SEPTEMBER 13, 1999 ISSUE | ||||||||
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| BOOKS
Bubble, Bubble, Toil and Trouble DEVIL TAKE THE HINDMOST A History of Financial Speculation By Edward Chancellor Farrar, Straus & Giroux 386pp $25 A funny thing happened to me while I was reading Edward Chancellor's Devil Take the Hindmost: A History of Financial Speculation. At the time, I was riding in a New York City subway train that had fewer seats than passengers. So I stood, holding a pole with one hand and Chancellor's book in the other, my body twisted between two fellow travelers talking about--what else?--the stock market. As it turned out, one of these commuters appeared to be an authority on the subject. A young man neatly dressed in a suit and tie, he nodded earnestly as a middle-aged woman described her portfolio--ticking off the names of high-tech favorites. After the woman finished, there was a pause before the market maven invoked the same names himself, adding after each one: ''You can't lose. You can't lose.'' My Chancellor in hand, I felt the urge to respond. ''What do you mean, you can't lose?'' I wanted to say. ''You can lose! You can lose everything! Remember George Hudson, king of British railway stocks, who fell so far he was arrested for debt? Or Anthony Morse, a leading New York speculator during the time of the Civil War, who died penniless in a seedy boarding house, where his landlady refused to release his body until his bills were paid? It says here that even Groucho Marx, who knew a thing or two about monkey business, lost a fortune in the '29 crash.'' Being that this was New York, I averted my eyes and stuck to my reading. Now, I would like to atone for failing to speak up. If you're the kind of person who discusses stocks with strangers on the train, read this book. Even if you're not, surely someone you know will benefit from its insights. Buy it for the day trader you love. Chancellor's book is hardly the first or last word on speculation--economist Charles Kindelberger's 1978 Manias, Panics, and Crashes is, after all, a classic in the field. As Chancellor admits, just defining speculation is no easy matter: Nearly every investment has the element of a gamble. The author makes no effort to be comprehensive, touching instead on some better-known investment bubbles--from the Dutch tulip mania of the 1630s to the near-failure of the Long Term Capital Management hedge fund last year. Still, Chancellor does a service by reminding us that speculative bubbles are regular events, however unique they seem at the time. An English-educated investment banker and financial journalist, Chancellor is sure-footed on economic matters. But the strength of his book is more literary than theoretical. (Appropriately enough, the only Marx mentioned in the book is Groucho.) He excels at describing the culture of speculative excess. And he makes it clear that the tragic thing is that every speculator has his reasons, at least at the start. Consider the South American mining mania of the 1820s. Anyone who has bought an emerging-markets fund in recent years will find the episode hauntingly familiar. Back then, the story was that the collapse of the Spanish empire in South America would open up opportunities for the world's most advanced economic power, Britain. In particular, mining seemed a slam dunk. ''Will not the probability be,'' asked one investor, ''that [mining] may be much better performed by Englishmen, who so well understand the use of machinery, than by Spaniards, who are comparatively ignorant of its application?'' However, there was a big problem--as one British mining official put it--''our Ignorance of the country which was to be the field of speculation.'' Almost all of the British mining ventures failed. Internet investors should read Chancellor's account of the British railway mania of the 1840s. Again, we recognize similarities with the current era. Interest rates were at their lowest point in nearly a century, and grain prices were down. What's more, the new technology of the day was widely admired. Journals were beginning to sing the praises of railroads, and investors joined in. ''The country is an asylum of railway lunatics,'' the poet Wordsworth wrote. But company promoters grew increasingly corrupt. And when rates suddenly headed higher, the boom turned to bust. The author appreciates that in the right circumstances, the poetry of the sales pitch overwhelms investors' reason. He quotes the writer Daniel Defoe as saying in the 17th century that he had ''seen Shares in Joint-Stocks, Patents, Engines and Undertakings, blown up by the air of great Words.'' Later, Mark Twain grasped a similar truth when he warned that ''a mine is a hole in the ground with a liar standing next to it.'' Chancellor's book is strongest where the literature is richest; he is more a reader than a reporter. As a result, chapters on recent events, and those outside Britain, are rendered with less flair. At times, he tends to simplify. ''The American,'' he writes, ''is equipped with more than just a hopeful vision of the future and a drive for self-improvement. He is prepared to take enormous risks to attain his ends.'' If that's the case, why does Fidelity Investments still offer money-market funds? In the end, however, Chancellor is effective. He leaves readers facing unavoidable if unanswerable questions. What lessons can we draw from past manias? Are we in a bubble? Is a crash about to come? Reading Devil Take the Hindmost may make you feel smarter than the other folks on the train. But it won't make you feel more secure. BY GARY SILVERMAN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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