I heard a speaker make a great observation at a major conference I was speaking at. He said: “95% of people are a genius at something.â€
That doesn’t mean they’ll be Einstein or a CEO of a large corporation or a visionary entrepreneur… it just means everyone displays their brilliance in other, sometimes less-noticeable ways.
I have always found that to be true. I am good at what I do, but horrible at so many other things. I couldn’t fix a door knob if you gave me a ten-step, illustrated guide with online assistance from a personal consultant!
But when it comes to investing, the numbers are opposite. Most people — let’s say 95% or more — are not good at this. Financial advisors regularly tell me that the most intelligent, educated, and high-income professionals, like doctors and lawyers, are often the worst investors.
They think their intelligence in their respective fields naturally transfers over to an equally specialized field like investing… but it rarely does!
When markets are near major tops or bottoms, and even in most of the swings in between, surveys of everyday investors will almost always show that the investment mood or “sentiment†of the great majority is dead wrong.
Psychological surveys show that the great majority of people are risk averse. They fear loss more than they value gain. It’s the same with pleasure and pain…
Studies have shown that when rats are presented a drug and left in isolation, they have absolutely no aversion to taking the drug and screwing up their lives… but when you put them in a healthy, safe environment with other rats, most of them stop! The loss of a good, normal life simply terrifies them.
The crucial point is, humans are social creatures, and whichever way the herd goes, we follow.
Our monetary leaders have encouraged us to spend wastefully and invest foolishly. And the majority of people respect and trust the words they hear from on high. So, they follow!
