Adam Smith: Beware The Black Horsemen During Bull Markets

In his book Supermoney, Adam Smith provides a great illustration of investing psychology during bull markets. Here’s an excerpt from the book:

A mass-circulation magazine asked me to explain to its readers what was going on. I had this Fellini scene:

We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment the Black Horsemen will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors.

Those who leave early are saved, but the ball is so splendid no one wants to leave while there is still time, so that everyone keeps asking “What time is it? What time is it?” but none of the clocks have any hands.

The Black Horsemen did come, of course, and most of the guests were still at the ball.