Be careful around crowds.
Especially if you want better investment returns. There are times when investment manias sweep through the markets, lifting anything in a particular niche or with a particular name. The internet boom of the late ‘90s, the biotech boom of the late ‘80s, the oil boom of the ‘70s, and recent crypto-craze, where anything related to block-chain cryptography was granted almost instant unicorn status. These levels rarely last.
Conversely the mob can turn on sound stocks and depress their valuations just because they’re in the wrong neighborhood. During the BP oil spill in the Gulf of Mexico, a publicly traded trust based on Alaskan North Slope oil saw its price tumble simply because it had the wrong ticker. Similarly, a sub-prime auto-loan company fell 90% during the financial crisis because it made sub-prime car loans. Their collateral didn’t have problems. The company just worked in the wrong sector.
Mob psychology has been with us for centuries. In Shakespeare’s Julius Caesar, Marc Anthony stirs up the crowd against the conspiracy that murdered Caesar. In the next scene, as a mob swarms through the streets, they come upon a man with the same name as one of the conspirators: Cinna. “Tear him to pieces,” they rage. “He’s a conspirator!” As the throng carries Cinna away, he shouts in protest, “But I’m not a conspirator, I’m Cinna the Poet!” “Tear him for his lousy poetry,” is the final response. When the hoard is out for blood, facts don’t matter.
When a crowd gets excited, watch out. What starts in enthusiasm often ends in tears. It may be feel like there’s safety in numbers, but not when you’re investing. What’s comfortable is rarely profitable, and what’s profitable is rarely comfortable.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”