Lollapalooza Effect: Charlie Munger’s Great Insight Into How Humans Really Behave
By knowing what it is, you might be able to recognize when you are falling for it.
Isaac Newton was a genius. Yet, even revolutionary thinkers make stupid mistakes. They are human after all. Just like you.
Newton came up with the laws of gravity, calculus, and enhanced our understanding of light, but he also invested in something called the South Sea Company. At the time, England was facing a huge public debt, and didn’t have much money to even pay its army. So in order to take care of this problem, some individuals came up with incredibly “creative” solutions.
One of these was the setting up of the South Sea Company, which among other things would consolidate the government debt. In order to help with its mission, it was granted a monopoly on trade with the “South Seas”, aka South America.
The problem with this act of the London government was the fact the continent was controlled by Spain and Portugal. Turns out, the company didn’t really do much trading with its supposed monopoly area.
Instead, the company turned into a get rich quick scheme. Hype around the firm grew to epic proportions, and investors quickly piled in. The stock price skyrocketed…
