In the world of finance, wealth can be easily gained and just as easily lost. Discover the thought-provoking stories of the Groupon founders, traders navigating wild market swings, and the stark realities that challenge the notion of “buy and hold.” This is a little bit of a journey into market history, so if you move on without reading every word…
Just remember –
“Those who do not remember their past are condemned to repeat their mistakes. Those who do not read history are doomed to repeat it. Those who fail to learn from the mistakes of their predecessors are destined to repeat them. Those who do not know history’s mistakes are doomed to repeat them.”
George Santaya
I was leafing through a series of old charts the other days when I came across GRPN (Groupon) I hadn’t seen an updated chart for ages so decided to have a look and see if anything positive had happened since the last time I looked – spoiler alert it hasn’t as can be seen by the chart below.
GRPN had a rather spectacular fall from grace from rejecting an $8B offer from Google to hitting a high of $622.80 and a market cap of almost $16B to running foul of regulators and eventually bottoming out at $2.89. So much for buy and hold. However lately, it does seem to have been a positive hunting ground for traders.
Whenever I revisit some of these corporate disasters I always have a series of thoughts.
- What are founders thinking when they are offered staggering sums of money to simply walk away and leave the keys behind them? Perhaps it is a variation of the same thinking traders have when they have a position go from $1.00 to $10.00 within a month. Maybe if it has gone up 1000% in a month it will go up 1000% next month and then another 1000% the month after that.
- What are traders/investors thinking when the stock they bought at $622.80 is now $2.89?
- There will be someone who bought at the high and sold at the low – there should be a t-shirt for these people.
- Buy and hold is a profoundly stupid notion that is constantly defeated by market data.
- Some losses are catastrophic and can never be recovered either financially or emotionally. The founders could have walked away billionaires. I have seen the same thing in traders I have a colleague who once left $14M on the table because a company director told him the stock was going to $50 – it went to $0.05 and he walked away with nothing. He never recovered.
- Wealth is easily lost.
Really, is it any surprise?
Large studies have been done, and books written about what has been called “predictable irrationality” in individuals, and then also what happens when large numbers of people get together in the “madness of crowds”. It is a matter of considerable fascination to me that, although humankind has noticed, and noted, these phenomena repeatedly over centuries (and probably millennia), I have not seen the sort of studies that explain and elucidate the psychological phenomena subtending them. My suspicion is that it is all extremely complex in that what we may define as craziness (in that it does not make any sense from our current perspective) manifests itself when we are alone, and also when we are together. It’s just different that’s all. But clearly it would make sense, as does everything, if it could be understood. It has been well described, but not understood.
From my perspective, these attributes are so all pervasive and persistent in our history that whatever it is must be deeply embedded in our DNA. The interesting question remains as to why and how it got there. Somewhere, somehow, at some time in our vast history, there must have been a survival advantage in what to us now seem to be behavioural characteristics which threaten our survival in modern societies.
I agree with you Chris, it is absolutely fascinating. But I believe that the time is long past when we should be surprised by it any longer. Our surprise is derived merely from our failure to understand. And therein lies our challenge.