Beat the Crowd: How You Can Out-Invest the Herd by Thinking Differently

CHAPTER 5 Take a Safari With Jack Lemmon and Walter Matthau

Throw on your khakis, grab your binoculars and don’t forget your hat: It’s safari time!

Yes, we’re going on an elephant hunt. Not a real one—we’re trading stocks, not ivory! This is an observation-only expedition. Elephants are our friends.

As we saw in Chapters 3 and 4, markets are pretty efficient at pre-pricing all known information and widely discussed opinions. When everyone stares at something, and they chatter endlessly about their opinions and expectations, it can’t surprise. But if folks stare at one thing, they overlook something else. That something else may be the proverbial elephant in the living room—some huge truth that, for whatever reason, everyone ignores or forgets. Spot the elephant, and you can get an edge.

The elephant in the room is jam-packed with surprise-power mojo. It’s the big thing that has always been there, and everyone knows about, but they’ve forgotten (humans don’t have elephants’ awesome memories). If you ask someone about the elephant, they might nod politely—they might know of it!—but they’ll assume it’s too old, too familiar to be any good. They’ve discounted it and forgotten how much it works, just like we saw with professional forecasts in Chapter 2. Or they brush you off because they’re too busy looking for Dracula around the corner. Or they think the elephant is too boring. The latest headlines are way more exciting!

So what is the elephant?

Simple: Walter Matthau and Jack ...