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How did the prices get so high in the first place It begins with the whole mindset of the 1980s The rage of the eighties was mergers Otherwise known as hostile takeovers Corporate raiders such as T Boone Pickens would find a company with a stock that they felt was undervalued and attempt to acquire it They would finance this by issuing junk bonds These risky bonds paid a high amount of interest to the bearer Much of the collateral needed for the bonds was provided by the cash flow and value of the company to be acquired After the company was acquired the new management would dismantle the corporation selling off many of the assets The idea was that the company was worth much more in little pieces than together These raiders made millions Because the raiders needed to acquire enough shares to control the company at all costs they paid a premium price for the stock These corporate takeovers pushed the stock value upwards Another problem in the years that led up to the crash was the extreme pressure on the money managers to produce profitably and immediately Harvard professor Jeffrey Glauber states There is tremendous pressure on money managers to perform better than our peers This pressure will continue to lead them to look for short performance Theyll continue to act in an herd like manner As was mentioned before the individual investor is becoming rarer on Wall Street Much of the money is now invested in mutual funds by big time money managers They feel extreme pressure to produce in the short term This is a fundamental difference in the way stocks are invested today compared to years ago Years ago the brokers or investor would look at the financial position of the company and its potential for long term growth Today most money managers and investors are looking at the short term It almost
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