1. What does the article mean when it says that ‘rational valuation took holiday’?

Rational valuation took holidays means that the investors are no longer rational because people will tend to follow trends and be influenced by peer group pressure. There are three major factor why investor tend to become irrational. The first is the one that received the most publicity during the late 1990s by private individuals; millions were lured into the more fashionable sectors of the equity markets, notably technology. Improved access to information and dealing facilities through the internet fuelled the expanded participation, often by so-called ‘day traders’. Second, professional investor have failed to provide a proper balance. Portfolio managers have been drawn towards relative performance, with the help to increasingly varied complicated stock market indices, and risk control model. This can be seen from Vodafone, which accounted for 13 per cent off London’s All-Share Index at one stage, was generally regarded as a low-risk holding relative to the index, whereas in absolute terms it actually carried a high risk, though with a share price down only ‘only’ 51 per cent it has not turned out to be as risky as some (not yet, anyway). Fund managers who held out against the irrational fashion of 1999 and early 2000 faced a big risk of being washed away by the tide, although if they survived they will performed very well recently.

Third, the market’s institutional structures have become unstable. Investment banks, and their executives, became irresponsibly greedy, a trend that culminated in the wave flotations of immature companies, often scarcely past the start-up stage. Stock exchange, sometimes themselves new, competed aggressively for the quotation of these unproven and risky enterprises degrading their own listing standards in the process. Quality was