NGPF Podcast: Bill Bernstein on his latest book, The Delusions of Crowds
GameStop, cryptocurrencies, NFTs...and the list goes on of examples of speculation in today's financial markets. Who better to weigh in on these and other examples of financial speculation than Bill Bernstein. The full title of his new book, The Delusions Of Crowds: Why People Go Mad in Groups, captures the essence of our conversation. In this podcast, Bill discusses the power of narrative to fuel "bubbly" behavior and why social media (think sub-reddit groups like Wallstreetbets) acts as an accelerant in propagating those narratives. Bill helps to place today's market activity in a historical context while also highlighting the cognitive biases that explain investor behavior. Enjoy!
- 0:00~7:03 Current Events with MissBeHelpful: Protective Parents
- 7:03~7:32 A word from NGPF
- 7:32~8:42 Introducing this week’s guest: Bill Bernstein, Financial Theorist, Author, and Neurologist
- 8:42~11:31 Decision to write The Delusions Of Crowds: Why People Go Mad in Groups
- 11:31~13:40 On the chapter, “Capitalism’s Philanthropist”
- 13:40~15:14 The role of the media during the tech bubble
- 15:14~18:12 The power of narratives
- 18:12~20:06 Bill Flynn’s barbershop
- 20:06~25:15 How Bill’s background as a neurologist informs him as an investor
- 25:15~28:01 Explaining GameStop
- 28:01~29:48 How financial services companies make money through payment for order flow
- 29:48~33:54 Is Bitcoin a bubble?
- 33:54~33:51 Confirmation bias as disconfirmation bias
- 33:51~37:25 What’s going on with NFTs?
- 37:25~39:52 When and why bubbles burst and the role of social media
- 39:52~41:07 Conclusion
- FinCap Friday: Protective Parents
- The Delusions Of Crowds: Why People Go Mad in Groups
- Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds
- Leon Festinger’s When Prophecy Fails
“Social media is clearly an accelerant [of a bubble]. The analogy that I use is with a pandemic or an epidemic. You’ve got the disease agent, which in the case of a bubble, is the narrative: [for example,] ‘the internet changes everything and all of our transactions are going to be run through Bitcoin.’ And then you have the vector, the animal or the agent, that transmits it. And social media is a very effective vector.”