A VIEW FROM

In the 1980s, junk-bond fever took over America.

They were called junk bonds because they were risky investments. There was a good chance you’d lose your money. So why would anyone invest in something like that? The reason is always the same. If it’s a risky investment, you have to give people more money for investing. If it’s a safe investment, you don’t need to do that. It’s the same as the odds on any bet. If it’s a safe bet, you don’t get much money back. If it’s a long shot, you get a lot more money back. Otherwise people would only bet on the safe bet. But what really changed the market was a man called Michael Milken. And he did it with a classic piece of marketing. He stopped calling them junk bonds. Milken changed the name to high-yield bonds. Stop concentrating on the downside ( you could lose) and concentrate on the upside ( you could win big).

Immediately, the name repositioned all other investments.

If these were high-yield bonds, everything else must be low-yield bonds.

Soon investors were desperate to get into high-yield bonds. It’s what’s known as FOMO: fear of missing out. No- one wants to be the one left behind, so everyone follows like sheep.

But there was one investor who could see where this was going. His name was Ted Forstmann. Forstmann tried to tell everyone that high-yield bonds were just junk – you stood to lose everything. But they called Forstmann old-fashioned, a dinosaur. And they ignored him. Like sheep, they kept putting all their money into Milken’s junk bonds. It reminds me a lot of advertising. The purpose of advertising was originally to make something famous. To get ordinary people talking about it. But then media began changing, and advertising became about chasing the latest media gimmick.

Facebook, Google Glass, Pokémon Go, VR, AI, whatever.

Everyone was petrified to be left out, so the ads they ran didn’t really matter.

Just as long as they had something running in every new channel.

And advertising became a conveyor belt, stuff to fill holes in a media plan. Nothing to do with persuading people anymore. People were just targets to be hit. And anyone who criticised this approach was oldfashioned, a dinosaur. Just like Forstmann had been. New-media fever took over the advertising sector just the way junk-bond fever took over the financial sector.

Everyone was doing it because everyone else was doing it, like sheep. Milken was right and Forstmann was a dinosaur. Right up until 1989. When the junk-bond market collapsed as Forstmann had predicted.

Milken was disbarred from trading in the stock market.

He was fined $1.1bn, and sentenced to 10 years in prison. Milken’s investors, the sheep, lost everything. Meanwhile Forstmann, the dinosaur, became a billionaire.

The lesson is: if you put a dinosaur in a field full of sheep, the dinosaur wins.