Monday, June 27, 2005
Nonstop national videogame
Gautam Chikermane asks in the Indian Express:
[H]ow can a patch-up affecting one group, how ever big it may be, throw so many other companies into the stratosphere? So abruptly? Will, as the confident suits in the financial sector claim, the Sensex now touch 8,000? Will it, as one humungous networth individual claims, cross 25,000 in five years? Where are all these numbers coming from? Should we believe them when the grimy underbelly of the same sector has a rumour doing the rounds, whose essence is that the Sensex will touch 7,200 or even 7,400 and then crash to, and stabilise around, the 6,400-6,600 range?This reminds me of Jason Zweig's description of the dotcom bubble, in his commentary for the new edition of Benjamin Graham's classic "The Intelligent Investor", as a “nonstop national videogame”. In that piece, Zweig had written about how the share price of a company called Temco tripled in a manner of minutes because frantic investors mistook its ticker symbol, TMCO, for that of Ticketmaster Online (TMCS). I spent some time in the dealing room of one of India's largest brokerage houses last week, and got to hear similar stories, of companies whose only office was a small room and a telephone finding their stock price going berserk. Much fun is being had by speculators, and I sometimes wish I had money to invest. Given my luck, though, the bull-run would probably end as soon as I invested.
Irrational exuberance? This now-popular phrase was first coined in a December 5, 1996 dinner speech by Alan Greenspan, chairman, Federal Reserve Board. In 2000, Robert J. Shiller, a professor of economics at Yale, wrote a book by that name where, following the Internet bubble of the mid to late 1990s, in which he prophesied that obsession with stocks was turning the financial system into a casino. And how ever strong the fundamentals of our economy, sectors and companies, the current rally is displaying strong signs of this irrationality.