Houses of Cards

Bull markets grow until the rate at which they must be sustained exceeds the ability of market participants to sustain them.

As of this writing in early May, 2000, bull markets in real estate and stocks have reached volatile points. Ups and downs now include wild and relatively large swings in short time peaks. These fast moves have the potential to catch even the best experts off guard -- uncovered and unprotected.

Below is partial list of some solid past performers who have foundered in the capital markets. Specific details are unique to each, but are rooted in the psychology of market frenzies.

-- George Soros, founder of Quantum Fund & top management (The fund reportedly lost $5 billion during April, 2000.)

-- John Merton, Long-term Capital Management & top management (They were so deep in derivatives and related losing positions with partners on such a grand scale that the U. S. Federal Reserve felt obliged to come to the rescue.)

-- Steven C. Hilbert, founder of Conseco & top management (After 21 years of successfully pushing the limits of extended leverage risk, they were stymied and forced by the board of directors to resign.)

-- Julian H. Robertson, Tiger Management Fund (Robertson recognized the perils of a market he was not comfortable with and shut down the fund rather than compromising his standards.)

Warren Buffet says, "We will never buy anything we don't understand.... Any time there have been real burst{s} of speculation in the market, it does correct eventually". "Looking back, you will see this as an era of enormous wealth transfer, but investors as a whole will gain nothing. It's the same principal as a chain letter."

Buffet's Berkshire Hathaway had its worst year ever in 1999, with profits down and its share price losing 20%. So far this year, Berkshire's shares have risen 5.70% to $59,300, beating the 1.14% decline in the Standard & Poor's 500 Index.

See also: Games

The investment axiom that is always valid: Caveat Emptor

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