I found this:
Which I feel ties in quite nicely to yesterday’s post.
So the thing is: we know this. As in: everyone knows this. This is not new. It is not news. We’re generally aware of the fact that market bubbles are not the time to buy – because that’s when everyone is buying.
But in a world of supposedly rational individuals, the real question is: “But why though?”
I mean – if everyone knows not to buy shares when everyone else is buying – why do you still get these moments?
The Good News
Two things to realise:
- Firstly, it’s hard to have an independent opinion. Mainly because people get annoyed with you, start calling you names (“Mary contrary”), and question your sanity (popular opinion, after all, is against you – and “Are you saying that the whole world has it wrong?” is a tough counter to your “But this is madness!” statement).
- Secondly, it’s even harder to act on an independent opinion with real money #lossaversionbias
But the reason this is good news: it suggests that good investing can sometimes just be a question of moral fortitude and a willingness to step away from the herd.
And this should make sense.
Because logically, yes, the whole world could quite conceivably have it all wrong. And that’s not necessarily arrogance…
As herd animals, we like to be a part of things. Being part of a herd makes us feel safe and secure and like we won’t be the only one looking like an idiot if it all goes horribly wrong (and/or eaten by wolves). But there is a price to be paid for all that security: it means that we’re late to the good stuff and hang around for the scraps long after we should have moved on to greener pastures. It’s the sheep at the front that get the sweetest grass – the followers get the remnants, which can be dust depending on just how far back in the pack they are.
So the obvious solution: don’t be afraid to look up from time to time. And it’s okay to step out occasionally – just avoid the gullies and shadowy places where the wolves tend to hang out.
It’s just my view.
PS: apologies for the shortness of the post – busy morning!
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
