A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Twelfth Edition)

“In crowds it is stupidity and not mother-wit that is accumulated,” Gustave Le Bon noted in his 1895 classic on crowd psychology.

The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain profits. And history tells us that eventually all excessively exuberant markets succumb to the laws of gravity.

History, in this instance, does teach a lesson: Although the castle-in-the-air theory can well explain such speculative binges, outguessing the reactions of a fickle crowd is a most dangerous game.

Determinant 4: The level of market interest rates.

Part of the genius of financial markets is that when there is a real demand for a method to enhance speculative opportunities, the market will surely provide it.

Rule 1: Buy only companies that are expected to have above-average earnings growth for five or more years.

the clear conclusion is that, in every case, the market did correct itself. The market eventually corrects any irrationality—albeit in its own slow, inexorable fashion.

Keynes, in other words, applied psychological principles rather than financial evaluation to the study of the stock market.

Technical analysis is the method of predicting the appropriate time to buy or sell a stock used by those believing in the castle-in-the-air view of stock pricing. Fundamental analysis is the technique of applying the tenets of the firm-foundation theory to the selection of individual stocks.