Historical Thought for the Day
March 30, 2010
Thought for the day:
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
–Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (Farrar, Straus & Giroux, New York, n.d.)
This day in financial history:
1867: U.S. Secretary of State William H. Seward agrees to purchase the Alaskan territories from Russia for $7 million -- a price so preposterous that newspapers around the country immediately tag the deal "Seward's Folly" and christen Alaska "the polar bear garden."
Source: http://lcweb2.loc.gov/ammem/today/mar30.html
1998: The bull market officially kills its last remaining brain cells as The Wall Street Journal prints an Op-Ed article by journalist James Glassman and economist Kevin Hassett entitled "Are Stocks Overvalued? Not a Chance." Glassman and Hassett, declaring that stocks are risk-free, show that they themselves are commonsense-free. Since stocks have "always" beaten bonds over 20-year holding periods in the past, Glassman and Hassett conclude that they always will in the future. Therefore, stocks should trade at a price-earnings ratio of around 100 -- meaning that "the stock market is undervalued by a factor of four" and the Dow should be at around 36,000. The rest of 1998 and 1999 make Glassman and Hassett seem right. Then comes 2000-2002, the worst bear market in a generation, and stocks lose 38% of their value. 1999: Priceline.com goes public in one of the hottest initial offerings ever: priced at $16, the shares open at $26.625 and close the day at $69, a first-day return of 331% (for those lucky few who could get in at the offering price). Exactly a month later, the stock will hit $162.375 -- but a mere year-and-a-half after the IPO, Priceline.com is trading at less than $5 per share.
Source: The Wall Street Journal, March 30, 1998, p. A17.
Source: The New York Times, October 6, 2000, p. C1.
Source: Jason Zweig
