Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

It’s Not Enough to Be Contrarian

Stock-Markets / Investing 2018 Jan 11, 2018 - 06:52 AM GMT

By: Chad_Champion

Stock-Markets

Barton Biggs was a guru hedge fund manager and global investment strategist.

He was also a serious student of World War II. His book Wealth, War & Wisdom is about what happened to stock markets and wealth during WW2.

Today is part one of a two-part series on the takeaways from this book.

This is important because it was during a time he calls “the most excruciating, destructive global disaster in all history.”


You can learn a lot about how to build and preserve wealth during times of global chaos and destruction. Of course, things like that don’t happen often.

But the idea is to learn from history. That way you have the tools to increase your wealth in good times and most importantly, preserve your wealth during the worst of times.

The goal at The Champion Investor is to build wealth and pass it down through the family for decades or even centuries. Our timeline is forever. It’s easy to think like that when you think about building family wealth.

Here’s part I on my takeaways from Wealth, War & Wisdom…

“Listen to the Market Crowd”

This is the opposite of nearly every investment book out there. Heck, I even talk about how important it is to ignore the crowd or herd too.

But there’s a deeper meaning to it.

Biggs wrote, “it has become very fashionable to be a contrarian.” You need to be what another legendary investor, George Soros, calls a “contra-contrarian.”

We can ignore the crowd or herd… But we should still “listen” to what the crowd is telling us.

Biggs again… “When asked or required to make judgements independently and in a rational way, the record of crowds is impressive.”

Here’s some interesting evidence from WW2…

  • The London stock market predicted Britain would win the Battle of Britain.
  • The German stock market peaked as the German army could “see the spires of Moscow.” (The Russians crushed the German army shortly after.)
  • The NYSE knew that the victories of Coral Sea and Midway were “the turn of the tide in the Pacific and never looked back from the lows.”

This goes back to the analysis I talked about yesterday… The importance of understanding price and value.

You see, experts sit around and talk about the markets with other experts. They hang out in the same groups and go to the same global conferences and private clubs.

This is group think.

It’s less wise than a group of random individuals or crowd think.

Biggs pointed out that author Philip Tetlock said, “Expert opinion on politics, economics, and business should be ignored as random blather because experts are even less accurate than non-specialists in guessing what is going to happen.”

Biggs also cited a study that showed 284 experts who made 82,361 forecasts over a period of years were right less than half the time and that they were worse than “dart-throwing monkeys.”

He then pointed out that the famous Austrian economist, Friedrich Hayek, argued that central planning could never be as economically efficient as the price mechanism. Because it’s impossible to know all the information and decision making of humans scattered around the country.

The power behind the price mechanism is decentralization. This decentralization IS THE WISDOM OF THE CROWDS.

The bigger the crowd the more decentralized it is. (Side note… This contrasts with mobs or small groups of people who participate in group think as explained above.)

Biggs again…

“Markets are a complex adaptive system. Individual agents will provide little or no worthwhile help on the workings or the course of the market… Therefore, it is so important to listen to the market. At crucial turning points, observe what markets do and ignore what the experts and the commentators say about what is going on.”

By the way… This doesn’t mean that markets can avoid bubbles, frauds, and panics. People can be irrational. (Just spend a few minutes watching YouTube or Facebook videos. You’ll find out how irrational people can be.)

But over the long term, Biggs says the market is generally rational.

OK… What does this mean?

It means that “listening to the market crowd” is one way to understand price and value.

It also means asking yourself a lot of questions.

For example, why is the stock market at all-time highs? You can’t just assume that a major correction is looming or it’s a sign of the next great depression.

You also can’t just assume that things will get better if the market is at decade lows. Look deeper.

Think about price and value. Listen to the power behind the price mechanism… The crowd.

For example, as part of understanding the big economic picture, an investor could look at the percentage of new highs or new lows in the stock market. Or look at the ratio of gold to the S&P 500 like we did a few days ago.

Or look at the technical indicators of the S&P 500 Index or Dow Jones Industrial Average.

A picture is worth a thousand words. So is a chart. It’s a picture the crowd has painted for us. Think of it like looking at a piece of art work.

In an art museum, we may ask ourselves things like… Is the composition asymmetrical? Is balance achieved? Is there a focal point?

Are there any parts of an object or figure out of proportion to the rest? Are shadows visible? Are the lines horizontal or circular?

How does all of this influence my response to it?

Find confirmation from the “market crowd.” Understand what’s driving the stock market.

Biggs said, “Every mania stems from some degree of substance in a life-changing development whether it was railroads in the nineteenth century or technology in the waning moments of the twentieth century…

In retrospect, even in 2000 there was some rationality in the market as a whole. Tech and internet growth stocks were selling at ludicrous valuations, but other major value segments of the market that were out of favor were ridiculously underpriced.”

Are we in the middle of a stock market mania? Is there a life-changing development out there right now like the railroads or the internet that may produce the next mania?

Is that life-changing development Bitcoin or the Blockchain?

Today’s not about answering those questions. It’s about learning the lesson of how important it is to listen to the crowd.

It’s not enough to be contrarian. You need to use the crowd to your advantage too.

It’s a little counterintuitive. But you’ve got to do it to be a successful investor.

Stay tuned for Part II tomorrow…

By Chad Champion

http://thechampioninvestor.com

Chad is the Founder and Chief Investment Strategist at The Champion Investor. He’s focused on giving the individual investor the good, the bad and the ugly on stocks, the markets and the economy.

You can sign up for his free investment letter, Cut to the Chase, to learn how to make money in any market, create a second income stream, make more money and be a better investor.

He has a Finance and Investment Management background with a Master’s Degree focused in Investment Management and Financial Analysis and a Masters of Business Administration focused in Financial Management.

He spent the past couple of years working as the lead analyst at The Casey Report and as a research analyst for Bill Bonner at Bonner and Partners.

© 2018 Copyright Chad Champion - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in