The crowd tend to lose their judgment and get lost

get lost

The reason why people get lost easily

Nietzsche mentioned in “Morgenröte, 1881” that there are three reasons why people recognize something:

  • One is that I know nothing about this matter.
  • Second, this phenomenon can be seen everywhere.
  • Third, this thing has already happened.

Whether this matter is good or evil, what advantages and disadvantages it will produce, and what legitimate reasons it has are not the criteria for people to judge. So most people identify with inheritance, tradition and politics.

Seeing is believing NOT exist in market

Stay away from crowded places: the masses are always blind, so don’t follow the crowd. Even with hundreds of years of stock market data, as well as the personal experiences and teachings of several top investors, most people still don’t believe in so-called long-term investing, which is a necessary condition for successful stock market investing. Always making excuses for yourself, thinking that you are smarter than others, can beat the market and find the winning formula. They mocked those who chose long-term investment as fools, saying that their funds were not used efficiently, and other seemingly plausible but self-righteous fallacies.

“Seeing is believing” is not necessarily true when it comes to investing. At least that’s what I’ve learned from the books I’ve read, the news reports I’ve watched, and my own experiences with countless people over the past thirty years.

Markets are not rational

Charlie Munger put it more directly: “I think good character is more important than the brain. You must strictly control those irrational emotions. You need to be calm, self-disciplined, and be indifferent to loss and misfortune. Likewise, you must not be overwhelmed by ecstasy.”

Investment guru John Keynes mentioned: “There are two major uncertainties in the market: speculation and the animal instincts of human nature, that is, people’s “involuntary impulses”. They are not determined by basic rationality and knowledge, and cannot be calculated by mathematical formulas.”

“The crowd can do only two things: add icing on the cake or add insult to injury.” “The crowd has never thirsted for truth, and they turn a blind eye to evidence that does not suit their taste.” “Isolated individuals have the ability to control their own reactions and behaviors, but the crowd does not have this ability. The crowd Blind obedience will overwhelm the individual’s rationality. Once an individual identifies himself with the group, his originally independent rationality will be overwhelmed by the group’s ignorant madness. “

James Solovich explained in the book “The Wisdom of the Crowd” that “Independence is very important for rational decision-making. There are two reasons: the first is that the various mistakes made are not related, and individual judgments are wrong, as long as the mistakes are not pointing in the same direction systematically will not ruin the collective judgment. Second, independent individuals are more likely to have new information, rather than stale information that everyone is already familiar with.”

Academic hypothesis not refect the fact

The “Efficient Market Hypothesis” and “Modern Portfolio Theory” can produce Nobel Prize winners, but these two theories are actually based on many beautiful “assumptions” and are not actually feasible at all. For example, the biggest premise of both is that “investors are rational.” Anyone with a little investment experience or common sense knows that investors and the market are not rational.

If the “efficient market hypothesis” and “modern portfolio theory” are true, there should be no stock analysts and the huge industry of Wall Street, and there would be no next Buffett. Because these jobs can be completely theorized and formulated, as long as the industry can be formulated, human labor will be completely replaced. No one has the memory, computing power, the speed of calculation, or the thoroughness of thought to match the rapidly advancing computer industry.

Buffett’s Advice

In Buffett’s 1961 letter to shareholders, he mentioned: “You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you.” and Buffett stated that “You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason.” In the investment world, Things that make you comfortable are rarely profitable.

Buffett said: “Investment must be rational. If you can’t understand it, it’s not easy to do.” and from his view: “Investment is a rational job. If you can’t understand this, it’s best not to mix things up.” This is why he said “I am very rational. Many people have higher IQs than me, and many people work longer hours and work harder than me, but I do things more rationally. You must be able to control yourself and don’t let emotions dictate your sanity.”

get lost
credit: Ideogram

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