The very idea that ﬁnancial markets swing between extremes of optimism and pessimism is a controversial one in modern times. Much orthodox economic thinking has held that markets are always so-called ‘efﬁcient’; that they perfectly reﬂect all knowable future information and always produce in some sense the ‘right’ price. Our view is more nuanced. As the history of finance shows, markets are human institutions; vital to human progress, but they are not perfect. They reﬂect the humanity of their participants, and therefore we should neither worship nor despise them.
The Pit & The Pendulum
The ‘Pit’ in the title of this book refers to the trading pit. Whether in Chicago, London or Tokyo, the pit is where traders have for centuries met to bargain and make deals in just about anything that can have a price. The ‘Pendulum’ represents the seemingly ineradicable tendency of traders’ emotions to swing back and forth between phases of optimism and pessimism about the future, accompanied in the background by moods oscillating between greed and fear.
The original idea for this book comes from 30 years’ experience of both trading and analysing ﬁnancial markets. When performing a detailed statistical analysis on huge volumes of data, there is great virtue in representing data and ideas visually in the most elegant and insightful way. It is said that ‘a picture is worth a thousand words’. We have come to place very high value on good graphic and pictorial representation of information and thought that it would be interesting to produce a lavishly illustrated history of manias, panics and crashes.