What is a mania? It is defined as a mental disorder characterized by agitation, agitation, delirium, and excessive activity. In the case of investing, it translates into investment decisions driven by fear and greed without analysis, reason or balance of risk and mood with reward results. Mania usually runs parallel to the business development of the product, but time can sometimes move diagonally.
The technology dot boom of the late 90’s and today’s cryptocurrency boom are two examples of how a mania works in real time. These two facts will be highlighted at each stage in this article.
The first stage of a mania begins with a great idea. The concept is not yet known to many, but the potential for profit is huge. This is usually translated as unlimited profit, since “something like this has never been done before”. The Internet was one such event. People who used paper systems at the time were skeptical that “how could the Internet replace such a familiar and accessible system?” The backbone of the concept begins to form. It has been translated into modems, servers, software and web sites that are needed to make the concept a reality. Investments in the concept stage start lazily and are made by people to “inform”. In that case, it could be dreamers and people working on projects.
In the cryptocurrency world, the same question is being asked: how can a piece of crypto code replace our currency system, contract system and payment system?
The first web sites were crude, limited, slow and annoying. Skeptics will look at the word “information superhighway” that dreamers were spotting and saying “how can this really be effective?” The forgotten element here is that ideas start from their worst and then evolve into something better and better. This is sometimes due to better technology, more scale and cheaper cost, better application for the product in question, or more familiarity with the product combined with great marketing. In terms of investment, early adopters are entering, but there is still no surge and astronomical return. In some cases, investments have made decent income, but not enough to make the public jump. This is similar to the slow internet connection of the 1990’s, the crash of Internet sites or the incorrect information in search engines. In the cryptocurrency world, this is being observed due to high mining costs for coins, slow transaction times and account hacking or theft.
Word started to come out that this is the internet and “.com” hot new thing. Product and precision are being built, but because of the larger scale involved, cost and time will be spent before everyone uses it. The investment aspect of the equation starts to get ahead of the business development as the market discounts the business potential along with the investment value. The tide has begun to turn, but only among early adopters. This is happening in the cryptocurrency world with the explosion of new “altcoins”, and the big media press that is gaining ground.
This stage is influenced by the parabolic return and potential offered by the Internet. Don’t think too much about implementation or problems because “returns are huge and I don’t want to miss out”. The words “irrational outburst” and “mania” are becoming commonplace because people are buying out of sheer greed. Negative risks and negatives are widely ignored. Mania’s symptoms include: dot com red hot with any company name, analyzes thrown out the window in favor of optics, investment knowledge among new entrants becoming less and clearer, expectations of 10 or 100 bagger returns are common and very few people actually know how the product works. Or does not work. It has played into the cryptocurrency world with great returns towards the end of 2017 and the company’s shares popping up hundreds of percentage points using “blockchain” in their name. There are also “reverse takeover offers” where shell companies that are listed on the exchange but inactive change their name to join the blockchain and the shares are suddenly actively traded.
Crash and burn
The business landscape of new products is changing, but not as fast as the investment landscape. Eventually, a switch of mindset appears and a huge sales game begins. Instability is widespread, and many “weak hands” have been removed from the market. Suddenly, the analysis is being used again to justify that these companies have no value or “overvalue”. Fear spreads and prices accelerate downwards. Companies that have no earnings and who survive on hype and future prospects are blown away. Fraud and scams are uncovered to take advantage of greed, which causes more fear and sells securities. Businesses that have money are silently investing in new products, but the rate of progress slows down because the new product is “an ugly word” unless profits are guaranteed. This is starting to happen in the cryptocurrency world with the high incidence of cryptocurrency lending schemes and coin theft. Some marginal currencies are falling in price due to their speculative nature.
At this stage, the investment landscape is burned by the story of loss and bad experience. In the meantime, the great idea is coming to clarity and it’s a roar for businesses that use it. It continues to be implemented in daily activities. The product began to become standard and dreamers were quoted as saying that the “information superhighway” was real. The average user notices an improvement in the product and it starts to take over widely. Businesses that had real profit strategies hit the crash and burn stage, but if they had the cash to survive, they went on to the next wave. This has not yet happened in the world of cryptocurrency. Expected survivors are those who have a real business case and corporate backing – but it remains to be seen which company and coin it will be.
The Next Wave – Business Catch Up to the Hype
At this stage, the quality and profitability of new products is becoming apparent. Business lawsuits are now based on earnings and scale rather than concept. A second investment wave starts with these survivors and extends to another early stage mania. The next stage was identified by social media companies, search engines and online shopping which is the derivative of the original product – the internet.
Manius works in a pattern that moves in the same fashion over time. Once one recognizes the stages and thought processes one by one, it becomes easier to understand what is happening and the investment decisions become clearer.