Charles P. Kindleberger
A friend gets rich
What breaks your judgment is the person next to you
Manias, Panics, and Crashes (1978), on the euphoria stage
You think you are judging the market. This chapter says what actually moves you is the person beside you getting rich.
What actually happened?
Over decades of lectures Kindleberger polished one line, and he noted what it did: it always drew a nervous laugh. There is nothing so disturbing to one's well-being and judgment as to see a friend get rich. He put it in the section on euphoria. By that stage buyers have stopped pricing the trade at all. They are chasing a particular person - the one who last week was much like them and this week is not.
You are comparing, not forecasting
A stranger's windfall is mildly interesting. A colleague's, a classmate's, a neighbour's, and you cannot sit still. The question is not whether the trade is good. A line between you and that person has just moved.
The same news lands differently from a financial page and from your school group chat.
The laugh is nervous because everyone recognises it
It got a laugh because the rooms were full of professionals, and professionals are no different. He spent a career refusing to model people as accurate calculating machines. In a mania, losing your head is what normal people do.
The last buyers in are often not the least informed. They are the ones who watched a peer outperform them for three years.
Change what you measure yourself against
The feeling does not yield to argument, but the benchmark can be swapped. Measure against the line you wrote in advance, not against the person. The line was written before; the person appeared after.
Write down in advance what you would buy, how much of it, and what would tell you that you were wrong.
You only ever see the ones who won
Friends who made money make sure you hear about it. The ones who lost go quiet. You think you are watching a population of outcomes, and you are watching the half that still speaks.
In the same group the winning screenshots arrive daily. The losers simply stop posting.
How do I use it today?
Where you are: someone close to you made money on this, you say you are pleased for them, and you cannot sit still.
Ask first: if a stranger had made that money instead, would I still want in today?
Where it goes wrong: turning this into so I should never follow. It only takes the envy out of the decision. You still have to decide.
Lines to keep
What breaks your judgment is a friend getting rich.
The last ones in are usually the ones who watched.
Measure against the line you wrote, not the person who appeared.
Same situation, other people are asking
Everyone agrees it's a good bet. Is that already in the price?It's obviously overheated. Why does it keep going up?Am I early, or am I just the last one in?Someone I know got rich on this and I can't sit still.Everyone is piling in · all 5 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.