The Only Three Questions That Still Count: Investing By Knowing What Others Don't, 2nd Edition

When You Are Really, Really Wrong

We’ve talked about those myths perpetuated by investors inventing or imagining causal correlations where none exist. What about those myths so wrong the inverse is actually true? Sometimes, when you ask Question One, you discover you have been not only wrong but really, really wrong. Don’t fret. Discovering you have been wrong and uncovering a reverse truth gives you yet another basis for a market bet. A powerful one because you know for certain everyone is betting on the exact opposite of what you know is likely to happen.

It may be hard for you to imagine something you and your fellow investors can get so completely wrong. But there are some myths in the misguided investor doctrine held so dearly, questioning them is almost sacrilegious. Suggesting such a belief be scrutinized, if only to confirm its veracity, would bring outrage, scandal and possible excommunication. These myths, the most sacrosanct beliefs in the investor and social catechism, those no one dares question, are sometimes ones we find to be so wrong the exact opposite holds true.

The Holiest of Holies—the Federal Budget Deficit Myth

You probably believe a high federal budget deficit is bad. Everybody knows budget deficits are bad. How do we know? We know because everyone knows. Duh! Pundits, politicians, patriots, perverts, poker partners, your parents, your pet parakeet and worst of all, Sean Penn, Brad Pitt and Dolly Parton. Everyone! More important, everyone believes it. There ...