Why are the majority so wrong at the same time and in the same ways?
As we said in What is this publication all about?,
Here, we believe that if you want to achieve excellence in your investment endeavours, you have to be prepared, from time to time, to go against the prevailing market trend with strong convictions.
That is, you have to believe that sometimes, the majority is simply wrong.
The next question to ask is this: Why are the majority so wrong at the same time and in the same ways?
To answer this question, we will bring you on to a journal that begins with the parable of the turkey:
This parable leads us to the very much-misunderstood concept of Black Swans. This concept is foundational to the understanding of the answer to this question:
Where does this lack of understanding of Black Swans lead us? When the existence of Black Swans is assumed away, highly sanitized and naive modellings of the real world can then be constructed from the unrealistic Bell Curve. The outcome is the creation of models that represents pseudo-reality. Sadly, the Bell Curve pervaded much of modern finance and economics:
- How the folks in the finance/economics industry became turkeys?Part 2: The Bell curve, that great intellectual fraud
What is the consequence of letting the Bell Curve infiltrating our underlying assumptions?
- How the folks in the finance/economics industry became turkeys?Part 3: Consequences of turkey thinking
- How do you define risk?
The majority is wrong at the same time and in the same ways because they fail to understand Black Swans. What makes us so susceptible to Black Swan blindness?
Hence, the majority fails to see turning points:
Examples of such failures: