Nobody knows everything. Not even brilliant minds like that of Elon Musk have the answer to every question. And even if they did, they are massively outnumbered by those who don’t know what’s going on.
The stock market doesn’t follow the smartest people, it follows the people with the most cash. And when you have entire populations of novice investors doing the ‘wrong thing’, their voice is heard before that of the smart people like Musk.
So just because somebody is doing something doesn’t make it right. The challenge is trying to be contrarian and bet against the consensus. That’s easier said than done.
If you’re in a building and suddenly everybody starts screaming and running towards the exit, there’s a good chance that you’re going to run too. That’s the herd mentality that has served us humans very well for tens of thousands of years.
The problem is that us humans are also pretty sh*t at trading. That’s why only 10% of investors regularly outperform the market. The 90% majority lose money, or more accurately don’t make as much money as they should.
If you look at the CFD statistics for example, they are staggering. It was only up until a few years ago that CFD firms were able to hide their true numbers and so they were able to convince clients to join them, promising them unlimited riches. Their sales pitch was all about how much money somebody could make, if they traded in CFDs.
However, the FCA rightly put a stop to all of that by forcing CFD firms to publish on their website what % of their clients make money. The number was ridiculously low – something like just 10-20% of their clients made money whilst 80-90% lost money!
And whilst this figure doesn’t surprise me, it shocked retail investors because for the first time they could see in black and white that they had almost no chance to make money, despite the lofty promises of their advisors and brokers.
You should also bear in mind that the figures that you see now on CFD firms’ home page is most likely a lot better than what it was before they had to start publishing numbers.
What does this all mean? Well, it means that most people, haven’t a Scooby-Doo (clue) of what to do. They just do whatever else is doing, and without giving it any thought. The sheep mentality is strong all over the world it seems.
That’s exactly what I saw in Panjab.
The mayhem and chaos from everybody failing to follow basic traffic signals, lane discipline and common sense principles, meant that everybody suffered. Huge traffic tail-backs, more accidents, longer time to reach destinations, and greater stress were the result of the majority of people collectively and individually doing the wrong thing, all of the time.
Trading is the same.
Most people do the wrong thing, which means that to make money you have to do the OPPOSITE. When the market falls and people panic, you should be buying, and when the market rallies and people buy, you should be selling aka panicking.
It’s harder for some people than others, and if you already naturally adopt a contrarian outlook on life, then that’s good news for you – use that same ideology and think twice before following anybody off the edge of a cliff.