Whole article focus is on stupid investing & investors.
www.zerohedge.com
Out of consideration for soonerinlouisiana, no nickel for you today. I have taken the liberty of parsing & posting excerpts of the article into a Cliff Note's type summary. The whole article is extremely interesting if you are in the markets.
1976 by Carol M. Cipolla, a professor at the University of California, Berkeley & Howard Marks.
The professor published an essay outlining the fundamental laws of a force perceived as humanity’s greatest existential threat: stupidity.
Stupid people, according to Cipolla, share several identifying traits:
“The only way a society can avoid being crushed by the burden of its idiots is if the non-stupid work even harder to offset the losses of their stupid brethren.”
While we can’t do much about the seemingly rising level of “human stupidity,” we can apply Cipolla’s five basic laws to investing and the mistakes investors repeatedly make over time.
Law 1: Always and inevitably, everyone underestimates the number of stupid individuals in circulation.
“No matter how many idiots you suspect yourself surrounded by you are invariably low-balling the total.” – Cipolla
“…stupidity” is compounded by a variety of biased assumptions. Individuals assume that when the media publishes something, superficial factors like the commentator’s job, education level, or other traits suggest they can’t possibly be stupid”. We, therefore, attach credibility to their opinions as long as they confirm our own.
This is called “confirmation bias.”
As individuals, we want “affirmation” that our current thought processes are correct. Human beings hate being told they are wrong, so we tend to seek out sources that tell us we are “right.”
This is why “social media” has become such a pervasive problem in the spread of misinformation. Individuals huddle into their own “echo chambers,” which exclude intelligent debates and, in many cases, actual facts. It is always important to consider both sides of every debate equally and analyze the data accordingly.
Law 2: The probability that a certain person is stupid is independent of any other characteristic of that person.
Cipolla posits that stupidity is a variable that remains constant across all populations. Every category one can imagine—gender, race, nationality, education level, income—has a fixed percentage of stupid people.
Though we are often unconscious of the action, humans tend to “go with the crowd.” Much of this behavior relates to “confirmation” of our decisions and the need for acceptance. The thought process is rooted in the belief that if “everyone else” is doing something, then if I want to be accepted, I need to do it, too.
As Howard Marks once stated:
“Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, since momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s essential to remember that ‘being too far ahead of your time is indistinguishable from being wrong.’
Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.”
Law 3. A stupid person is a person who causes losses to another person or a group of persons while deriving no gain and even possibly incurring losses.
Consistent stupidity is the only consistent thing about the stupid. This is what makes stupid people so dangerous. As Cipolla explains:
“Essentially stupid people are dangerous and damaging because reasonable people find it difficult to imagine and understand unreasonable behavior.“
aw 4: Non-stupid people always underestimate the damaging power of stupid individuals. In particular, non-stupid people constantly forget that at all times and places, and under any circumstances, dealing with and/or interacting with stupid people is a costly mistake.
However, as we have seen throughout history, “stupid” people tend to do exactly the opposite during a crisis, unlike what “non-stupid” people expect.
As Howard Marks stated above, sometimes being a contrarian is lonely.
When we underestimate the stupid, we do so at our peril.
Law 5: A stupid person is the most dangerous type of person.
Stupidity And The 5 Laws Not To Follow | ZeroHedge
ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero
www.zerohedge.com
Out of consideration for soonerinlouisiana, no nickel for you today. I have taken the liberty of parsing & posting excerpts of the article into a Cliff Note's type summary. The whole article is extremely interesting if you are in the markets.
1976 by Carol M. Cipolla, a professor at the University of California, Berkeley & Howard Marks.
The professor published an essay outlining the fundamental laws of a force perceived as humanity’s greatest existential threat: stupidity.
Stupid people, according to Cipolla, share several identifying traits:
- they are abundant,
- they are irrational, and;
- they cause problems for others without apparent benefit to themselves
“The only way a society can avoid being crushed by the burden of its idiots is if the non-stupid work even harder to offset the losses of their stupid brethren.”
While we can’t do much about the seemingly rising level of “human stupidity,” we can apply Cipolla’s five basic laws to investing and the mistakes investors repeatedly make over time.
Law 1: Always and inevitably, everyone underestimates the number of stupid individuals in circulation.
“No matter how many idiots you suspect yourself surrounded by you are invariably low-balling the total.” – Cipolla
“…stupidity” is compounded by a variety of biased assumptions. Individuals assume that when the media publishes something, superficial factors like the commentator’s job, education level, or other traits suggest they can’t possibly be stupid”. We, therefore, attach credibility to their opinions as long as they confirm our own.
This is called “confirmation bias.”
As individuals, we want “affirmation” that our current thought processes are correct. Human beings hate being told they are wrong, so we tend to seek out sources that tell us we are “right.”
This is why “social media” has become such a pervasive problem in the spread of misinformation. Individuals huddle into their own “echo chambers,” which exclude intelligent debates and, in many cases, actual facts. It is always important to consider both sides of every debate equally and analyze the data accordingly.
Law 2: The probability that a certain person is stupid is independent of any other characteristic of that person.
Cipolla posits that stupidity is a variable that remains constant across all populations. Every category one can imagine—gender, race, nationality, education level, income—has a fixed percentage of stupid people.
Though we are often unconscious of the action, humans tend to “go with the crowd.” Much of this behavior relates to “confirmation” of our decisions and the need for acceptance. The thought process is rooted in the belief that if “everyone else” is doing something, then if I want to be accepted, I need to do it, too.
As Howard Marks once stated:
“Resisting – and thereby achieving success as a contrarian – isn’t easy. Things combine to make it difficult; including natural herd tendencies and the pain imposed by being out of step, since momentum invariably makes pro-cyclical actions look correct for a while. (That’s why it’s essential to remember that ‘being too far ahead of your time is indistinguishable from being wrong.’
Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it’s challenging to be a lonely contrarian.”
Law 3. A stupid person is a person who causes losses to another person or a group of persons while deriving no gain and even possibly incurring losses.
Consistent stupidity is the only consistent thing about the stupid. This is what makes stupid people so dangerous. As Cipolla explains:
“Essentially stupid people are dangerous and damaging because reasonable people find it difficult to imagine and understand unreasonable behavior.“
aw 4: Non-stupid people always underestimate the damaging power of stupid individuals. In particular, non-stupid people constantly forget that at all times and places, and under any circumstances, dealing with and/or interacting with stupid people is a costly mistake.
However, as we have seen throughout history, “stupid” people tend to do exactly the opposite during a crisis, unlike what “non-stupid” people expect.
As Howard Marks stated above, sometimes being a contrarian is lonely.
When we underestimate the stupid, we do so at our peril.
Law 5: A stupid person is the most dangerous type of person.
