Devil Take the Hindmost: A History of Financial Speculation

+++++ This extremely well researched book, by historian Edward Chancellor, is about the history of financial or stock market speculation. The line distinguishing investment, financial speculation, and even gambling is not absolutely clear: "[S]peculation is the name given to a failed investment and...investment is the name given to a successful speculation...The psychologies of speculation and gambling are almost indistinguishable: both are dangerously addictive habits which involve an appeal to fortune, and often [are] accompanied by delusional behavior and are dependent on success for the control of emotions." The title of this book "Devil take the Hindmost" comes from a phrase in the 1720 writing of an "anonymous pamphleteer." This phrase means "Let every person follow self-interest, leaving others to fare as they may." Chancellor takes us through significant periods of stock market manias or "speculative manias or bubbles." Some examples include: (1) the Dutch Tulip Mania of 1637 (2) the British South Sea Company Bubble of 1720 (3) the U.S. bull market of the 1920s (4) the U.S. bull market of the 1980s (5) the Japanese Bubble Economy of the late 1980s. All of the above events have one thing in common: the mania is always followed by a collapse, or more eloquently, the bubble eventually bursts. But as you read this book, you will discover that investors and speculators don't seem to learn from the lessons of the past. Why? Because as Sir John Templeton stated, there is this manic belief that "this time it's different." Throughout this book, you'll come across words such as these: mania or euphoria, bubble, crash or collapse, suicide, lotteries, gambling, speculation, irrationality, political influence, corruption, fraud, bankruptcies, bank failures, greed, profit, wealth, power, illness, anxiety, nervous breakdown, insider trading, capitalists, materialism, risk, murder, debt, and market manipulation. Chancellor also provides other interesting historical information in his narrative besides just historical information about speculation. For example, he tells us the true story of where the stock market terms "bull" and "bear" came from and what Mark Twain thought about investing and speculation. Contrary to belief, this book is not biased. In the epilogue of his book, Chancellor tells us the benefits that come from speculation. However, from reading the initial chapters of this book, it seems to me that these benefits come at a very high human cost. The only problem I had with this book is the plethora of footnotes. They occur on every second page or so. While some of the information in these were very interesting, I found that I got tired of being continually distracted by these footnotes and so I eventually gave up reading them. Although not completely necessary, it would be helpful to know some basics about the stock market and investment when reading this book. Chancellor does a good job explaining most things bu

Chancellor's book is a highly entertaining history of market speculation taking in everything from the Tulip Mania of 17th century Holland and the English South Sea Company bubble to Japan in the `80s, the Savings and Loan Rip Off, Michael Milken's Junk Bonds, the Long Term Capital Management fiasco and the Internet craze of the late 1990's. Chancellor even covers the 90's art market.One constant stands out about market piracy: what is new is old - only the names and games have changed. Markets have always been manipulated and always will be. The reforms that follow in the wake of each bubble plant the seeds for the next. Often because the legislators who enact the reforms are beholden to those positioned to benefit from the loopholes.There are several phrases that seem to pop up with every bubble:"This time it's different.""It's too big to fail.""The business cycle is no more," or some nonsense about reaching a plateau of permanent prosperity.Reading this book will make you think twice about investing in the market.It'll make you doubt the foundation of the efficient market hypothesis.It'll show how often the experts are wrong.It'll show how often Nobel Laureates in Economics turn out to be fools.It will make you think three times about investing in Japan.Four times about investing in Latin America.And you'll run away screaming from derivatives of any stripe.In fact, one wonders why the whole shooting match hasn't imploded yet, ala Baring's Bank or LTCM.Devil Take the Hindmost is a fun read. More important, the next time a Mania strikes - and it will - this book and a general understanding of the history of speculation just might just save you from rushing over the cliff with all the other lemmings.

A wizened wag at an investment firm once warned me to start looking for the sell tickets as soon as I heard the words "This Time is Different."In my short experience as an investor, it was some of the most sage advice I have received. Edward Chancellor book arrives at the same conclusion but provides more foundation to recognize the bubbles of speculation. Investment bubbles never change. Yet, for the investor or trader caught up in one, they remain difficult to identify. According to modern economic theory, markets are efficient and speculators are rational opportunists intent on maximizing their wealth.Chancellor, a former investment banker and historian, disagrees. More than fear and greed drives speculators, they motivated by deeper compulsions and aspirations. Speculation, he says, can only be understood within a social context and that its history cannot be a simple description of economic affairs. It is important to understand the behavior and attitudes of politicians, since the laws governing markets are written and enforced by governments.He traces the origins of speculative fever back to ancient Rome and follows the thread through Holland's tulip mania in the 1630s and London's stockjobbers 70 years later.The book ends with an insightful analysis of the Junk Bond era here in the United States, the Japanese bubble and the near collapse of Long Term Capital Management. It is a must read for every serious investor.

The heading for one chapter of Edward Chancellor's fine book quotes the investor Sir John Templeton: "The four most expensive words in the English language are 'this time it's different.'" Templeton's words sum up the most important lesson to be learned from this outstanding history of speculation, which focuses in particular on those manic episodes called bubbles, in which the prices of assets are driven to levels far above those justified by the assets' underlying fundamentals.Chancellor's account, while not a comprehensive study of speculation, thoroughly examines major speculative periods from the tulip mania of the early 17th century, to the Japanese "bubble economy" of the 1980's. Three repeating motifs characterize these speculative episodes. First is the irrationality of financial markets, especially the way in which people of all eras are susceptible to the euphoria which inflates a bubble. Second is the constant recurrence of manipulation of markets by the greedy and unethical, the likes of Jay Gould and his accociates.The third and most important theme is the existence of parallels between past speculative bubbles and conditions in our own time. Chancellor convincingly argues, for example, that the internet mania of today is similar in many ways to the British railway bubble of the 1840's.I strongly recommend this book to anyone with an interest in financial markets or their influence on history. The only, slight caveat I would offer is that it helps a reader to have at least some knowledge of the language of financial markets, as Chancellor at times tosses terminology at readers without offering a clear definition.

Chancellor is a rare breed: an economic historian well versed in both the nitty-gritty of financial analysis, and in the "reading" of social and intellectual history. This book presents plenty of both. Its author is extremely well-read ("seems to have read everything," as one professional reviewer wrote) on both fronts, and interweaves the two methods of argument admirably. Plentiful first-person quotations -- some from famous writers and intellectuals who speculated in financial markets of their time -- provide solid evidence for Chancellor's argument, as well making very entertaining reading about the personal financial activities of figures such as Alexander Pope and Daniel DeFoe.Chancellor also stakes out his territory intellectually and academically. This is not just a ho-hum journalistic history book. It is well supported with theory, argument, and analysis. For example, Chancellor attempts to discredit economic historians who sit too far in the "social history" camp, as well as those who sit too far in the "rationality" camp. For example, Chancellor gives the "tulipmania apologists" (rational-expectations theorists who claim there was nothing irrational about tulipmania) quite a thrashing. On the other hand, he does draw upon theoretical tools such as liquidity premiums and moral hazard to explain some financial manias, and is well versed in all forms of financial analysis. I failed to be entirely convinced by many of Chancellor's arguments, but nonetheless, I found them stimulating and thought-provocative. Because "financial speculation" encompasses almost all financial activity, this book encompasses enough to be a standalone primer on the history of financial trading.As an added bonus, Chancellor is a very readable, and even clever and amusing, writer. His occasional tongue-in-cheek remarks add life to some (necessarily) dry discussions of the history of financial instruments.This is an excellent history of finance, not just of financial speculation. Although I read this book for pleasure, not as an "investment book," it also has some wise lessons for investing, although the comparisons of internet stocks to Dutch tulips are by now a tired cliche (and, mercifully, Chancellor doesn't dwell too heavily on those comparisons).