Miss Congeniality movie poster
“It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”
— John Maynard Keynes, General Theory of Employment, Interest and Money, 1936
Keynes used an analogy of a fictional beauty contest in a newspaper (picking the six most attractive faces out of a hundred and those selecting the most popular would be eligible for a prize) to describe the actions of rational market participants.
He believed people were pricing shares not based on what they think the value is, but rather on what they think everyone else thinks their value is, or what everybody else would predict the average appraisal of value to be.
While Keynes is referring to professional investors in the early 1900s, a century later, with a wealth of information at nearly all our fingertips, his example is applicable to investors in general. It seems we’re no longer investing in the best companies, and we’re not even investing in the companies that we think everyone else favors — we’re investing in the companies that we think everyone else thinks are the companies that everyone else likes.
If the market is like a beauty contest, as Keynes’ words suggest, then it’s no wonder this market has people shaking their heads.
Find the beauty in life today.
Salvador Dalí, The Persistence of Memory, 1931 h/t MoMA.org
“Have no fear of perfection – you’ll never reach it.”
— Salvador Dalí
Speculate based on what you can lose, not what you can gain. Successful traders often have more losing trades than winning ones. They don’t mind taking losses, as they are expected.
As a general rule: Don’t overbuy a position or add to losing trades. Smart money management in trading is key for you to survive and thrive in the market. It allows you to avoid getting knocked out when you are wrong and be there to reap the benefits when you are right.
Dalí’s words are helpful to remember as you navigate through life’s ups and downs, as well.
Super Bloom, Anza-Borrego Desert State Park, h/t Sumiko Scott / Getty Images
“No winter lasts forever; no spring skips its turn.”
— Hal Borland
So it is, as well, with markets. Cycles come in, sometimes stronger than others.
Welcome Home, Spring!
This year, we’ve got a Super Bloom of wildflowers in Southern California. I love seeing the desert in bloom. For a guy who grew up on Long Island, the desert seems like a place out of the movies. Seeing such vibrant colors spring forth from the stark terrain gives us hope.
Russell Sage, circa 1870 h/t Hulton Archive/Getty Images
“He wears no crown upon his royal head,
But many millions in his purse, instead;
He keeps no halls of state; but holds his court
in dingy rooms where thrift and greed resort;
In iron chests his wondrous wealth he hoards;
Banks are his parlors; brokers his lords,
Bonds, bills, and mortgages, his favorite books,
Gold is his food, and coiners are his cooks; …”
— John G. Saxe, The Money-King, 1854
Saxe’s lengthy mid-nineteenth century poem is descriptive of the exalted financial state of the European banking families considered to be “Money-Kings.”
In 2019, many of the poem’s couplets ring familiar with today’s growing problem of income inequality.
It’s something to consider, when considering those running for office.
PS My father, Paul Sarnoff, authored a biography of Russell Sage, published in 1965, Russell Sage: The Money King. Sage banked the tycoons and helped shape the Industrial Revolution. He became one of the wealthiest people in US history.
Low tide at San Felipe, Baja California, Mexico h/t MexInsurance.com
“You can’t eliminate tidal ‘lunatic’ biases. They make folks bullish at tops and bearish at lows.”
— Chris Carolan, @spiralcal, spiralcalendar.com
Psychology plays an enormous role in markets. Traders and investors struggle to get a handle on their biases.
Failure to check your built-in biases can trip you up in and out of the market. They can flare up at inopportune times in many of your decisions, from the grocery store to the voting booth.
Often we’re unaware of outside forces exerting influence on human activity. Don’t be surprised when major world events and market turning points coincide with key cycle dates. After all, look at what the root of the word “lunatic” is.
Wishing you a safe and sane start to your week.
“May there always be work for your hands to do.
May your purse always hold a coin or two.
May the sun always shine upon your window pane.
May a rainbow be certain to follow each rain.
May the hand of a friend always be near to you and
May God fill your heart with gladness to cheer you.”
— Irish Blessing
Happy St. Patrick’s Day!
Wishing you health, happiness, and good fortune, as always,
Media Bias Chart 4.0 h/t adfontesmedia.com
“You become what you give your attention to…If you yourself don’t choose what thoughts and images you expose yourself to, someone else will.”
Select your news sources wisely. Don’t be blind to media bias.
Enjoy your weekend!
“There’s a quick and easy way to test whether an activity involves skill: ask whether you can lose on purpose. In games of skill, it is clear you can lose intentionally but when playing roulette or the lottery you can’t lose on purpose.”
— Michael Mauboussin
Working harder and smarter can improve your skill and likelihood of trading success. But in the end, it’s still to a large degree up to luck.
Just don’t ever make the mistake of believing your good fortune means you “know” the market.
Wishing you the best of luck,
h/t Bettmann Archives/Getty Images
“Security is mostly a superstition. It does not exist in nature. Life is either a daring adventure or nothing.”
— Helen Keller, The Open Door
Take care to be e sensible in your speculation, in and out of the market. And don’t forget to stop and smell the roses.
Photo credit: letterberry/Thinkstock
“In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well.”
— J. Kenfield Morley, Some Things I Believe
Return is commensurate with risk. If anyone tells you that you can make a large return with small risk, zip your wallet.