Investing Myth 6 | The Herd Myth | If my buddies are in, I am in!
Hey Intelligent Investor, we have had a great time writing the 7 Investing myth series. Do you enjoy them? Leave us a comment, kindly. And check previous myths: The Simple Interest Myth, the Ponzi Myth, the Stock market Myth, the Savings Myth and the Lottery Myth. Now to the Herd Myth: If my buddies are in. I am In!
Anyone remembers the recent protest with the caption ‘Our mumu don do’.
It is a coalition of Vexed, Angry, Frustrated Citizens. Most people in investing, however, don’t have a ‘Mum don do’ button or moment.
Because of that lack or rather total disregard for a ‘mumu don do’ moment, we invest with the crowd. We always do. It is called ‘Anywhere Belle Go’ syndrome.
If you look at the financial markets, what you have is a picture of what the crowd is doing. And it has been on since the dawn of age.
The herd is the market and the market is the herd.
Everyone is going where everyone is going. BUBBLE
Everyone stops going where everyone is going at the same time. BUST.
‘We the people’ in politics should be, ‘I the individual’ in Investing. You must be contrarian. Yes, You!
The Greater Fool Theorem
There is a theorem called the greater fool theorem. From Wikipedia:
The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price.
It alludes that most people are fools buying, with the only hope that a greater fool then comes along and buys the stock at a higher price. Basically, that’s the herd mentality.
It is funny that you hear people say things like ‘ I am ‘investing’ in bitcoin’. Nah, you are not. You are following the herd to bitcoin’s shargri-la. Now that is as sarcastic as it gets. There is no shagri-la in investing haven.
Perish that imagination. Investing intelligently is a daily, conscious continuous and consistent effort to do what others are not doing when they are doing what they should not be doing because you see what they are ignoring. Reading that statment again would be worth the trip!
Ask 9 out of 10 people today why they invested in bitcoin, their replies typifies the herd mentality. Check out some of the ones we have heard, yeah right!
I heard my friend talk about it.
My boss said he made 100% in 2 months.
My Pastor ‘prophesied’ that God would give me a Crypto- miracle.
The fact that your ally is doing something should not equal in weight to your doing it.
It’s just like saying ‘I am going to take a pee because my best friend just took a pee’. #Ugotey
See how ludicrous that sounds?
Or because you see someone’s IG or FB feed about their newly minted gold coins and you dive into investing in that stuff? #HowNa
Well, conventionally in the market, It has been discovered that if profit is the raison-d’-etre for investing, what you find, always without exception, is the evil opposite twin, his name, “LOSSES”.
And to talk about how we love the miraculous in this part of the world!!!
That your pastor prophesied a crypto-miracle to your life equals crypto-investing? What a miraculous nonsense!
Who said ‘God gave us two eyes and eyes so we can see and think more than we say ‘Amen’. Every prophecy believed should come with two ounces of thought and a simple question “Christ, what must I do?’ #enufsaid.
Plus ça change, plus c'est la même chose. The more it changes, the more it stays the same. Click To Tweet
It was Charlie Munger who affirmed, be greedy when others are fearful and be fearful when they are greedy.
The most successful investors have lived by that honour code.
Warren Buffet, our favourite of them all, bought Coca-Cola when its share price dipped after the massive failure of the new coke. And he, dear sir has held that stock from 1985 till date. What a man!
When everyone was crying pandemonium in the 1987 stock market crash, George Soros, in his book, the alchemy of finance, was buying stocks as fast as he could pick them up.
Investing Fact: Mr Soros broke the bank of England in 1992 and made one billion USD. Nothing is as cool as making money. And Nothing is as humiliating as losing money.
Prior to the 2008 GFC-Global Financial Crisis, when every Tom, Harry and Dick was investing in Subprime Mortgage. hedge fund manager, John Paulson was buying CDS on subprime loans. When the GFC came around and heads were rolling, he, sir was balling in billions. He made 20 bn USD for his investors and pocketed a clean 5 bn for himself. What a lifetime of profit by going, contrarian.
Wholeheartedly recommend the book on his trade written by Gregory Zuckerman, ‘The Greatest Trade Ever’.
As a people, we are prone to lores-storyland and cliches that make investing with the herd an easy route for naivety. As an investor, you must do your own thinking, your own analysis and your own investing. All investing is a one man show. And unless education continues to underscore the investing of our assets, the cycle of boom and bust in our own situation would be shorter. Like an emotional roller-coaster.
In investing, the ability to be still when others around you are losing their head is gold.
Remember to bust the herd myth, If my BFF does it, my pastor prophesies it and my boss makes 100% in it, Be STILL.
In a twist of being contrarian, we would leave you with this poem by Riyard Kipling. Pay unusual attention to stanza 5.
If you can keep your head when all about you
Are losing theirs and blaming it on you.
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:
If you can dream – and not make dreams your master;
If you can think – and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat these two impostors just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ’em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’
If you can talk with crowds and keep your virtue,
Or walk with Kings – nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
And – which is more – you’ll be a Man, my son!
6 min read.