The Stages of a Market Mania

What is a mania? It is defined as mental illness characterized by great excitement, euphoria, delusions and overactivity. In investing, this translates into investment decisions being driven by fear and greed without being tempered with analysis, reason or balance of risk and reward outcomes. The mania is usually running parallel with the business development of the product, but timing can sometimes run askew.

The late 90’s boom and today’s cryptocurrency boom are two examples of how a mania operates in real time. These two events will be highlighted with each stage in this article.

The Idea Stage

The first stage of a mania starts out with a great idea. The idea is not known to many people yet, but the potential for profits are huge. This is usually translated as unlimited profit, since “something like this has never been done before”. The internet was one such case. People using the paper systems of the time were skeptical as “how can the internet replace such a familiar and entrenched system?” The backbone of the idea begins to get built. This translated into the modems, servers, software and web sites needed to get the idea into something tangible. Investments in the idea stage start off lackluster and made by people “in the know”. In the case, it may be the visionaries and people working on the project.

In the cryptocurrency world, the same question is being asked: How can a piece of crypto code replace our monetary system, contract system and payment systems?

The Possibilities

The first web sites were crude, limited, slow and annoying. The skeptics would look at the words “information superhighway” that the visionaries were spouting and saying “how can this really be that useful?” The forgotten element here is that ideas start out at their worst, and then evolve into something better and better. This sometimes happens due to better technology, more scale and cheaper costs, better applications for the product in question, or more familiarity with the product combined with great marketing. On the investment side, the early adopters are getting in, but there is no euphoria and astronomical returns yet. In some cases, investments have made decent returns, but not enough to sway the masses into jumping in. This is analogous to the slow internet connections of the 1990’s, internet sites crashing or information being incorrect on search engines. In the cryptocurrency world, it is being witnessed by high mining costs for coins, slow transaction times and hacking or theft of accounts.

The Acceleration

Word starts to get out that this internet and “.com” is the hot new thing. The products and tangibility is being constructed, but due to the massive scale involved, the cost and time expended would be massive before everyone is using it. The investment aspect of the equation starts to get ahead of the business development since markets discount the potential of a business with the price of the investment. The euphoria is starting to materialize, but only among the early adopters. This is happening in the cryptocurrency world with the explosion of new “altcoins”, and the large media press that the space is getting.

The Euphoria

This stage is dominated by the parabolic returns and potential that the internet offers. Not much thought is given to the implementation or problems because “the returns are huge and I don’t want to miss out”. The words “irrational exuberance” and “mania” begin to become common as people are buying due to sheer greed. Downside risks and negativity and largely ignored. Symptoms of the mania include: Any company in its name is red hot, analysis is thrown out the window in favour of optics, the investment knowledge is getting less and less apparent among new entrants, expectations for 10 or 100 bagger returns are common and few people actually know how the product works or does not work. This has played out in the cryptocurrency world with the stellar returns of late 2017 and the incidents of company shares popping hundreds of percentage points by using “blockchain” in their name. There are also “reverse takeover offers” where shell companies that are listed on an exchange but are dormant have their names changed to something involving blockchain, and the shares are suddenly actively traded.

The Crash and Burn

The business scene for the new product is changing, but not nearly as quickly as the investment scene is changing. Eventually, a switch in mindset appears and a huge selling spree begins. Volatility is massive, and many “weak hands” and wiped out of the market. Suddenly, analysis is being used again to justify that these companies have no value or are “overvalued”. The fear spreads and prices accelerate downward. Companies who do not have earnings and who are surviving on hype and future prospects are blown out. The incidents of fraud and scams increasing to take advantage of the greed are exposed, causing more fear and selling off of securities. The businesses who have the money are quietly investing in the new product, but the rate of progress slows down because the new product is “an ugly word” unless the profits are demonstrated convincingly. This is starting to happen in the cryptocurrency world with the folding of lending schemes using cryptocurrencies and higher incidents of the theft of coins. Some of the marginal coins are crashing in value due to their speculative nature.

The Survivors

In this stage, the investment landscape is charred with stories of losses and bad experiences. Meanwhile, the great idea is coming into tangibility and for businesses that use it, it is a boom. It starts becoming implemented in day to day activities. The product starts to become the standard and the visionaries are quoted in saying that “the information superhighway” is real. The average user notices an improvement in the product and it starts mass adoption. The businesses who had a real profit strategy take a hit during the crash and burn stage, but if they have the cash to survive, they make it to the next wave. This has not happened in the cryptocurrency world as of yet. The expected survivors are those that have a tangible business case and corporate backing – but it remains to be seen which companies and coins these will be.

The Next Wave – Business Catches Up to the Hype

In this stage, the new product is the standard and the profits are becoming obvious. The business case is now based on earnings and scale rather than the idea. A second investment wave appears starting with these survivors and extending to another early stage mania. The next stage was characterized by social media companies, search engines and online shopping which are all derivatives of the original product – the internet.

The Conclusion

Manias work in a pattern which plays out in a similar fashion over time. Once one recognizes the stages and the thinking process at each one, it becomes easier to understand what is going on and the investment decisions become clearer.

Three Lessons Learned on the Red Clay of Kay County

Many moons ago, my grandpa and I would go fishing in our downtime. We were fishing when I was not mowing his yard, cleaning gutters, helping move an antique dresser, eating breakfast at McDonald’s with him and buddies, or cleaning out one of his buildings. Growing up, we spent a lot of time together. In August of 1999 I moved from Oklahoma to Minnesota. It’s a decision I am thankful for but losing the proximity to family and friends did make it challenging, especially early on.

Every young person needs a mentor; for me that person was Robert K. Smith. He joined the Army in October 1946 and served in the 32nd infantry regiment in Seoul, Korea. He remained there for 15 months. He was a light truck driver and hauled supplies across the 38th parallel. The decorations he obtained were the Bronze Star Medal, WWII Victory Medal, Army of Occupation Medal, Combat Infantryman Badge, Honorable Service Lapel button WWII, and the Sharpshooter Badge with rifle bar.

In March 1948 he was honorably discharged and returned to the plains where he met Mildred (my grandma). At the time he worked for his aunt and uncle building mattresses. In 1953 he opened a furniture restoration shop and in 1974 purchased a furniture store. This was the birth of the family business Smith Home Furnishings.

The frequency of fishing increased when I would return from Minnesota to Oklahoma. Purposeful conversation took place on the banks of the Chikaskia River, Lake Ponca, and Kaw Lake. It seems like yesterday that he would offer advice about popping the school bully between the eyes on the playground, how work never hurt a person, and if a cup of coffee cost more than $.50 it was too much. He has been gone for nearly 7 years but the wisdom bestowed has been archived.

There is one August day I will never forget. On this steamy morning we decided to catfish in a pond owned by cousins (mom’s side) outside Tonkawa, OK. We drove 20 minutes west on the back roads of Kay County. An approaching vehicle ahead would make a red hued smog that would make driving virtually impossible until we passed. When we arrived, we opened a steel gate and drove down to the pond. We got out of his F-150, walked to the pond, and sat our tackle on the south side of the water. After getting our rigs set we began hitting nice sized catfish (5-10 lbs). Then we moved to the west side of the pond which required walking through cattails. Soon after, a cottonmouth water moccasin slithered by us. We acknowledged it’s presence and continued fishing. About a minute later we noticed big snakes, small snakes, fat snakes, and skinny snakes swimming towards shore. We had encroached a snake nest on the banks of the pond. He found this episode comical but I had requested to leave. We only had one problem; we had to get the tackle on the south side. This required walking through knee high cattails which coincidentally was the snake nest. His preferred method to “scare” the snakes was to take his fishing pole and swish it through the brush and briskly walk through. Needless to say, he carried the tackle back to the truck.

He passed away in 2010; it was a sad time for our family. We knew he was in an awesome place but selfishly knew his absence would leave a void in our lives. I miss our conversations and he was always my phone a friend when I was in a bind. For today’s post I have decided to write about the three most valuable pieces of advice he provided to me during our 30 years together.

Marry someone who shares a similar value system and life goals

Marriage is not temporary! It is important to spend the rest of your life with someone who shares the same concept of life. I am no expert but have been married 11 years. Regardless of how much you love your spouse there will be occasional disagreements.

Honesty, hard work, and discipline were three values I learned from grandpa. I believe his faith in God and acting it out is why those three values were most apparent in him. Have you stepped in Barnes and Noble and seen the self-help section? It. Is. Huge! How to win friends, 7 habits of highly effective people, the power of positive living, Women who love too much, I could go on forever. Our philosophy has always been to rely on one self-help book which instructs on raising children, contentment, confusion, discipline, excuses, failure, fear, setting goals, gratitude, grief, hope, integrity, occupation, justice, lying, money, marriage, rejection, sex, and temptation. This book can be purchased for $20 and the title is simple: Bible.

Religion, giving, saving, budgeting, kids, retirement, intimacy, politics, and the past can be relationship killers. I am not advocating you spend the rest of your life with someone who views each of these just like you but you better be on the same page and accept each others thoughts and feelings. The key is communication.

Spend less than you make

The fictional character Wilkins M. from the Dicken’s novel David Copperfield said the following, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery”. Grandpa said it this way, “Make sure to spend less than you earn.”

You cannot out earn your stupidity and it is critical to live below your means. Have you ever wondered why so many professional athletes or friends who pull large incomes struggle with finances? It is because they do not budget, cannot out earn their stupidity, and are unable to delay gratification! They want what mom and dad have and they want it right now even if it took mom and dad 60 years to get it. They also want what all their broke friends have; status symbols.

One of my favorite personal finance books is written by the late Dr. Thomas Stanley called The Millionaire Next Door. The book is a summary of his study on traits of PAWs (Prodigious Accumulators of Wealth) and UAWs (Under Accumulators of Wealth). Stanley’s main point was PAWs did (3) things:

– Spend less than you earn

– Avoid buying status objects

– Take risk if it bears reward

It is not how much you make, it is how much you spend!

Help others

Grandpa was always willing to help people. Throughout my life I watched as he gave money, time, loaned his van to a friend who needed it for a medical appointment, and how selfless he was volunteering at the Lions Club, funeral dinner committee at church, and Tippers Club.

Billy Graham says, “Give me five minutes with a person’s checkbook, and I will tell you where their heart is.” Get In the Green was not created to boost your status. It is not about showing people up. Rather, it is about strengthening relationships, career autonomy (i.e. not being married to your job because you are broke), and making a difference in the world. If your income is transferred to Visa, ACS, Wells Fargo, BMW Financial, and Chase then how can you make an impact?

Now I will get a little political. I have heard the argument that federal, state, and local governments are designed to care for their own. My rebuttal is the federal government is $20 trillion in debt, there are 15 states slated for budget deficits in 2016 and 2017, and local government does not have the robust financial architecture to make the full impact. My point is there is no more efficient way to direct resources than by your doing.

We are all complex beings, having complex pasts, with causes and organizations that resonate with our being. Would you consider trying to do a little more this year to help others? This could be donating money, time, or simply saying a prayer for someone or something who needs help.

This article could have stirred up memories about someone special in your life. Maybe you have fond memories of a grandparent like Robert K. Smith. We would love to hear about the individuals who have molded you and the wisdom you have learned from them.

The History of Money Revealed

Throughout history a many variation of things have been money. Before the invention things like livestock, rocks, shells, beads and metals like gold and silver were all forms of money. In fact, in ancient time’s people physical exchanged goods directly for other physical goods. For example, if I have fish but needed coconuts and in turn you had coconuts but needed fish, then there would be a mutual agreement between us and a transaction could be made. This way of carrying out exchange was known as the barter system.

The barter system however, brought with it some challenges such as double co-incidence of wants. What if we both needed coconuts? Also, there was no common measure of value and no medium to measure the value of goods so who decides if your coconuts are actually more valuable than my fish?

Commodity money was then created to address this concern. A commodity is a basic item which can be used by almost, if not, everyone. Things like seeds, tobacco, tea, salt and even cattle were considered commodities however, carrying bags of these items over a period of time proved to be extremely difficult… especially trying to carry cattle! There were three main functions to money in these days: money must be a medium of exchange, a unit of account and, a store of value. Although these commodities were considered to be mediums of exchange it was difficult to consider them units of account and given that these commodities were also perishable items they could never truly be considered to be a store of value either.

Then came the introduction of coins and paper money. However, according to Wikipedia ‘due to the complexities of ancient history and because of the fact that the true origins of economic systems actually precedes written history, it is impossible to trace the true origin of the invention of money’. That-said, metal objects were introduced as money because metal was readily available, appeared easy to work with and, was recyclable. Countries around the world were minting their own series of coins with specific values making it easier to compare the cost of various items. Some of the earliest known paper money dates back to ancient China, where the issuing of paper money became common from about AD 960 onward.

Paper money began, what we would call in today’s generation, trending. Nations around the world today all use paper money. Through the evolution of paper money has come a longer list of functions from the previous three. Money must continue to be a medium of exchange and a unit of account however, it must also be portable, durable, divisible, and fungible, which means the dollar in your pocket is worth the same value as the dollar in my pocket. Money has always maintained that it is a store of value however, this is where things begin to turn a bit grey.


Consider that $100 US dollars from just a decade or two ago purchased a lot more goods and services than it would today. The same is true for the euro, the pound, and the yuan. All around the world the money of many nations are suffering what is known as devaluation meaning year after year our money is buying less and less. How then can we maintain that paper money is a store of value?

People all over the world today seem to be working harder for money that is continuously buying less. So, just like the barter system could not be maintained as a viable way of trade, the current system we use on a global scale has also become a broken one. In all parts of the world we have one major inherent problem and that is that our money does not maintain its value.