CROWD STUPIDITY

CROWD STUPIDITY

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Between 2009 and 2010, I lost almost a million naira from the Pozi spree of that period. I started investing with my greed cheering me instead of my senses directing me.  I see that the trend is back and many are also hurrying to the slaughter with their senses safely tucked away.

I felt I was the smartest dude then and anyone who tried to advise me got the response of “na who get mind they make am”. Most erroneously, I felt intelligent because everyone was doing it. But when the bubble went south and I lost all my savings of working with Diamond bank and almost my dream of going to the University, then I became more interested in understanding business, the psychology of money and sound investment principles.

One of the most obvious yet very dangerous signals of economic crunch is the prevalence of Ponzi schemes and crowd stupidity. In a bid to meet the basic needs, man can unman himself just to get along.

But the worst of it all is that the misdirection and misinformation that accompanies it is usually great and unprecedented.

The greatest problem of it all is that people find ways to adopt crowd behaviour without ever questioning the intelligence and rational of such. Worst of it, human memory is short and forgets too soon. Hence, history always finds a way of repeating itself. In fact, with the glamour  of the 21st century and the internet, the past is quickly forgotten as we are constantly seduced and lured into the ignorant biases of the crowd even when we know that we are all headed for doom.

Many people keep asking me my opinion on the prevalence of all the Ponzi schemes making round. I don’t have a perfect answer as no one does, neither can I see the future to know the ones that will collapse tomorrow or last till the next 50 years but these are my take:

  • Any investment that is driven by crowd intelligence is a wrong investment. The crowd is the worst group to take advice from when it comes to money.
  • Any investment that is glamorously and vigorously marketed is not a right investment or it has already become stale as the “big fishes” must have taken the juiciest part of it all.
  • Any investment that Barbers and Cab drivers have plenty information about and convince you of how it is the next big thing after the birth of Jesus is a wrong investment.
  • Any investment that appreciates massively just as a result of demand and supply is a bubble, hence, not sustainable. Demand and supply always get to equilibrium point and when such point is not substantiated with business fundamentals, the underlying asset always falls flat burning people’s investment without leaving even ashes behind.
  • Investments that suddenly become popular during a recession is no good one. such investments are driven by the worse market psychologies: greed and fear.
  • Making your investment decision based on the moves of 1 or 2 billionaires is a very dumb thing to do. If Richard Branson or Bill gates takes a business risk with $50m, its impact on their net worth is highly insignificant.  So they can comfortably lose the money and still be alive to die in peace soon. After all, they are already wealthy and old. When you use them as a benchmark and invest your life savings in the same scheme, you will find yourself in a coffin soon enough while your benchmarked billionaires take a trip to Fiji Island to cool off. Never use the risk experimentation of few billionaires to judge where to put your money. You don’t know what they know, lack their net worth, risk insurance, and risk appetite
  • Investing in what you don’t understand because everyone is doing it is a financial suicide. You can justify your moves by starting with your spare cash, but you hardly stop there when the “gambling effect” fueled by greed takes over your sanity.
  • Know your risk appetite and go where it can take you. Understand that as you gun for more returns, you are also gunning for more risk. It is an immortal lie to believe that you can increase your return without increasing your risk
  • An investment that doesn’t have a business model that is verifiable and flexible to changing economic position is always wrong and will lose money soon enough.

I’m not against you playing with your financial life, you can enjoy the process. After all, experience is the best teacher. But it would be wiser if you can learn from the experience of others and history rather than your own.

Before you put your hand in a burning fire, also be ready to bear the burns without complaining. Or at best, wear a fire proof. This you can do by developing watertight strategies that can protect you while you spin the roulette.

In all you do, make sure you stay safe and intelligent.

A word is enough for the wise!!!

Sincerely Yours in value,