3Chapter1. Mr. Market’s Bipolar Disorder
T
he patient exhibits classic manic depression—or bipolar disor-
der—combining episodes of euphoria with irritation. He goes on
wild spending sprees for months on end, using money he does not
have to buy things he does not need. In the buoyant periods he is
talkative and full of ideas, but only in distracted, zigzaggy ways. He
can charm you into buying the Brooklyn Bridge. Then, suddenly and
swiftly, he shifts moods, falling into a months-long spell of dar kde-
pression, often provoked by the tiniest annoyances, such as minor
bad news and modestly disappointing results.
Experts observe that the condition might be inherited, caused by
innate chemistry affecting mood, appetite, and the perception of
pain, which in turn could lead to dramatic weight gains followed by
abrupt weight losses. There are safety nets to fall bac kon, such as
government support, and government-approved treatments, such as
mood stabilizers. But the patient lives in denial and can become
angry and suspicious, sometimes not taking the medicine and pre-
cipitating more intense bouts of ups and downs.
The patient I am describing, of course, is the stoc kmar ket. It
mixes episodes of irrational fear with episodes of irrational greed. It
rises with massive infusions of funds—often borrowed—then falls
after the withdrawal of those funds. It bounces around like a circus
clown on a pogo stick, weaving wild tales of untold riches to be made
without effort. Then it pouts, plummets, and corrects, often on news
that this or that company failed to meet earnings estimates by mere
pennies per share.
Clear thinkers about market behavior rightly believe that this
condition is incurable, with the market being prone to fat gains fol-
lowed by fat losses without a nexus to business or economic reality.
Nevertheless, government engines such as the Securities and
Exchange Commission and private ones such as the New Yor kStoc kCopyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use