The Wisdom of Mobs
Jim Babka on May 6th 2008
Mark Skousen described the new book, “Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics,” as, “A cock-eyed, frolicking hell of a read.”
Anyone familiar with William (Bill) Bonner’s work at The Daily Reckoning would expect no less. He and his co-author, Lila Rajiva, used poignant rhetoric, colorful analogies, and often surprising humor, to drive home the point that following the crowd or trusting modern day prophets is a recipe for human disaster.
Decades ago, Hayek taught us about the Knowledge Problem in dry prose. Bonner and Rajiva expound upon and apply the Knowledge Problem to current events, and the result is an instructive laugh-fest.
But Bonner and Rajiva aren’t contrarians for the sake of ideology or humor. They want to establish that the world we’re in and the events we’re witnessing are NOT rational. Therefore, they canNOT be scientifically managed or anticipated. Their primary concern is the investor looking to increase the value of his portfolio: Following the crowd or taking the guru too seriously, that same poor investor might lose it all.
Bonner and Rajiva warn people of the dangers of world improvers and self-professed experts. Once again, they use shocking questions and humorous tales to illustrate their points.
1. They openly question insanity — doing the same thing repeatedly while expecting different results. The authors ask why don’t soldiers, dying by the thousands in the mud, shoot the butcher generals that sacrifice them on hopeless missions? Similarly, why didn’t buffoons like Mao or Castro get hung by their troops? Fashion can grind up your portfolio — or even you, personally.
2. Is more information always helpful? Bonner and Rajiva demonstrate that the phenomenon of witch hunts and the clamor for war both came from too much reading! A little knowledge is a very dangerous thing.
But most importantly, they apply their insights where Daily Reckoning fans would expect it — to the task of individual, financial planning. The book is copyrighted (late) 2007, so some of what they had to say was prophetic. They correctly anticipated the headlines of today.
Speaking of today’s financial bubbles — a mob activity — they place the blame on messiahs, especially Alan Greenspan. They demonstrate how, and possibly why, all experts are not only fallible, but generally wrong. And that includes the “Investment Advisor” — who, as they point out, always profits, no matter how bad his advice ends up screwing you.
Consistent with their thesis, they refuse to give any specific investment advice — no stock picks here! Instead, they give only warnings, and even these are hilarious.
Their recommendations include the study of history and the use of reason. But they warn of the dangers of each of these tools as well.
* Historically speaking, someone with a decade of experience in the market might believe they’ve seen it all. But, they point out, the patterns of history emerge patiently and a limited slice of history can be highly misleading.
* Reason, they write, is, “slave to our wishes. Our minds work for our desires, not the other way around.” Therefore, humility and self-awareness are critical parts of any investment strategy. Without those assets, investors should expect to pay high tuition at the School of Hard-knocks.
Obtaining wisdom should be fun. That’s why I heartily recommend, “Mobs, Messiahs, and Markets.”
Filed in The Boardroom, The Bookshelf |
“the world we’re in and the events we’re witnessing are NOT rational. Therefore, they canNOT be scientifically managed or anticipated.”
Most of the things that can be “scientifically managed or anticipated” are not rational systems. I think the conclusion that more obviously follows is: “Therefore, there is little reason to expect anything like rational self-optimization from them.”