Trading Event / Perspectives
The Tulip Mania (17th century):
Tulip mania was an archetype of the greater fool theory: People knew bulb prices were entirely detached from rational value but they believe others would be even bigger fools then they were. For a while, they were right."
Cynthia Crossen,
The Rich and How They Got That Way
"Flowers that had commanded 5,000 guilders a few weeks before now fetched one-hundredth that amount."
Mike Dash,
Tulipomania
Oct, 19 1987 Black Monday:
"The Dow Jones Industrial Average hit a new record or 2700 in Aug 1987, making more than a threefold increase in just 5 years... . Portfolio insurance was a set of strategies developed by two California academics, Hayne Leland and Mark Rubinstein, to protect large institutional portfolios against price drops. in principle, one can protect a portfolio against price drops buy buying put options which give the right, but not the obligation. to sell at a specific price. ... The difficulty was that in 1987, the options markets weren't deep enough to make such a strategy practical. But Leland and Rubinstein showed how traders could create 'synthetic puts' by a precise number of index futures whenever the market drops - the faster the drop, the more future sales."
Charles R. Morris
Money, Greed, and Risk
Why Financial Crises and Crashes Happen
"On Wall Street, the finger pointing began. What had caused the crash? "Program trading" (automatic trades based on signals from a computer program) was a favorite target. In particular, the critics blamed professionals who tried to cushion their portfolios against disaster with "portfolio insurance", a form of computerized trading that involves selling futures contracts when the market begins to fall. As the market plunged, their "insurance" orders hammered futures prices, and share prices followed. If investors would just realize that "the crash was largely a technical problem caused by computerized trading schemes the worst can be avoided," a story the The Wall Street Journal declared."
Maggie Mahar
Bull! A History of the Boom, 1982 - 1999
"Portfolio insurance and program trading created new computer-based techniques for continuously buying baskets of stocks as markets rose, or, as in this period, selling as the market declined. These products had been tested and used successfully during 'normal' markets but never during the dramatic price declines witness during these few days. The discontinuity of prices and the constant selling of these 'insured' portfolios exacerbated the market's crash in an unprecedented way."
Michael Steinhardt
No Bull - My Life In and Out of Markets
Great Stock Market Crash - On Stock Market Crash Of 1929 And Certain Situational Trades
On Long Term Capital Management - On Long Term Capital Management / The Internet Bubble
Trading Events / Perspectives Part 2 - On Human Nature
Trading Events / Perspectives Part 3 - On Market Behaviors
Jesse Lauriston Livermore - One of World's Greatest Stock Trader.
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