I have experienced four investment manias of epic proportions. By “epic proportions” I mean investment bubbles that, when they burst, caused serious economic pains to either an important sector of the economy, a whole country or an entire region. Those four investment manias were the parabolic increase, between 1970 and 1980, in the prices of precious metals, oil, mining and energy-related equities, as well as the Kuwaiti stock market, whose market capitalization in 1980 exceeded that of Germany.

The second “big” investment mania surrounded Japanese equities and real estate, and Taiwanese equities, in the late 1980s. It culminated in Japanese stocks commanding a larger market value than the combined values of the US, British, and German stock markets. At the same time, the trading volume in Taiwan frequently exceeded the daily turnover on the New York Stock Exchange! Then, in the 1990s, we had several rolling investment manias in the emerging markets, which ended with the devastating Asian crisis of 1997, and the Russian crisis and LTCM in 1998. In the fourth and last great investment mania, the object of speculation was the Dotcom market on a worldwide scale and we all know very well how that ended.

These four “epic” investment manias — I have omitted mini manias such as the US casino stock boom in 1978 ahead of the opening of the Atlantic City casinos; the 1978–1980 Philippine oil frenzy, which collapsed when no meaningful oil deposits were discovered; the 1983 personal computer mania (remember Commodore, Wang, Televideo, and Atari?); the 1986–1987 US stock market and leveraged buyout (LBO) boom; the 1993–1994 Mexican investment euphoria; and the 1996–1997 Hong Kong property market surge — all had one common feature: they were concentrated in just one or very few sectors of the economic or investment universe and were accompanied by a poor performance in some other asset classes.

Continued tomorrow.