I heard a radio broadcast recently about how successful a large group of people was at guessing the weight of a cow and how that shows the wisdom of the crowd. That’s why it’s so hard to beat the market.
Stories about the wisdom of crowds, the popularity of indexing, and celebrities picking stocks (in 2000 it was Barbra Streisand, in 2007 it was former baseball player Lenny Dykstra, and this year, it was a former Playmate of the Year) - all are signs of an aging bull market. Teenagers also become investment gurus. My all-time favorite was the teenage actress who was giving out day-trading advice. And in a true sign of the times, New York Magazine wrote up a teenager who supposedly made $80 million trading after school - a story that turned out to be fake.
By contrast, at market bottoms you’re much more likely to hear stories about Chaos Theory and the Irrationality of Crowds - which amazingly appeared abruptly with the sudden crash in August.
Today, more than ever, investors are talking about growth as the most important determinant of a stock’s future return. It’s almost a cliché. XYZ stock is going to grow a lot in the future, which means that I’m going to make a lot of money. Or a sector like the biotech industry is going to grow a lot and make investors rich. Or a whole area of the world is going to grow, like emerging markets, or now, frontier markets.
Question: Why not invest in some hot stocks like Netflix, Priceline.com, Tesla, solar stocks, etc.? Wouldn't that be a way to make money quickly given how much they've recently gone up?
It's true that you might make money quickly in a "hot" stock. You may even know someone else who has. I remember a good friend of mine telling me in late 1999 how he had made $10,000 in a few weeks on an Israeli tech stock. Of course, that period was followed by the NASDAQ Crash of 2000-2002, and I've never heard about a stock that my friend has bought again.
The following are some of the serious problems with such a speculative strategy:
We’ve talked about this before, but it’s still a question in my mind: why do people make the same old mistakes over and over again? We know what they do; the data you present shows that. But why do they do it?
First, you have to decide if you even need life insurance. Are you the sole provider for young dependents? Are there other people who are dependent on your income? Are your assets too limited to take care of these people if something happened to you? Also, life insurance can be used in some sophisticated estate planning techniques. If none of these apply, you may not need insurance.
Question: "I see in the news that Blackberry is on the ropes and I wonder whether it is a classic example of why it is risky to invest in tech stocks...Blackberry seems finished, undone by other competitors in a relatively short number of years. Is this, then, a classic example of how a product can be so useful and so valuable that it stimulates intense competition and therefore is not a wise investment because profit margins are likely to be low? And is it also perhaps a great illustration of how in the tech industry things are changing so fast that it is easy to fall behind quickly to the point where you go out of business?"