Mobs, Messiahs, and Markets

Never Get Too Far from the Facts

Investments go up … and down. The secret is to buy them when they are down and sell them when they are up. The lumpenpatsies do the opposite. If every public spectacle has its victims, here they are. The lumps get excited about an investment when everyone else is excited about it—which is precisely the time not to buy. Buying low and selling high seem simple enough, but you do have to know which way is up.

Donald Rumsfeld tells us, pithily, that there are known unknowns, there are unknown unknowns, and there are things about which we don't have a clue. Of course, that didn't stop the Bush administration from launching the most ill‐advised war in U.S. history, nor does it stop us from having opinions and ideas about things we know nothing about. In fact, as we get older, the less we seem to know about anything. But the less you know for sure, the more important it is to have rules and principles you can follow. So, as we become more ignorant about what is actually going on, we become more stubborn in our opinions about what should be.

Now, imagine that there were no Financial Times, no Barron's, no commentators, and no one writing books predicting the future performance of the Dow. You'd have to rely only on your own eyes and ears, and your own wits. Investing would become a private matter. And it would be better for it.

Why? Because useful intelligence decreases, like gravity, by the square of the distance from the facts. A private investor is ...