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The "mass" (or the majority) is always wrong?

I attended a presentation made by the school science department yesterday where there was a group of about 60 parents. The teachers went through some questions which students were made to predict and this particular question came about. The question is as follows:

Predict what will happen when an astronaut releases both the hammer and the feather from the same height simultaneously on the moon. The choices are:

A. Both the hammer and the feather will float upwards.

B. Both objects will stay suspended at the point where they are released. Neither rising or falling.

C. Both objects will fall downwards and the hammer will reach the ground first.

D. Both objects will fall downwards and hit the ground at the same time.

Which answer would you pick? As it is, the majority of the parents picked the wrong answer and the correct answer only drew a small handful of responses.

The answer is in the video below for your reference if you need it.



Two different "lessons" came out from this simple experiment.

1. We should never have pre-conceived ideas for things which we are unsure of.

Sometimes our brains have been 'brained-washed' to believe in certain concepts or ideology either by our parents (e.g. the stock market is a dangerous place), our schooling system (e.g the stock market is efficient) or our market guru friends (e.g. what the guru said about the stock must be right).

We should always find out for ourselves, do our own homework and draw our own conclusions. (e.g. i believe this stock is a good investment because of the following reasons....or i believe now is the time to invest in the property market because of ...etc)

2. The majority is always wrong. 

From this simple exercise, perhaps it can demonstrate that in many situations, only a handful of people will read the situation correctly. This is especially so during any crisis, such as tech bubble, SARs, Lehman crisis etc.

Whenever crisis struck, no one dared to enter the market. Everyone waits at the sidelines or suffers from the pain.  Only a handful who dare to be different, who dare to go against the opinions of the mass, came out highly profitable. The mass will then lament for missing the boat and rush into the market when everyone else is doing it. You see that in the stock market, you see it in the property market and you see it everywhere. Hence whenever you see the mass rushing into something 'hot', the end is probably near. Remember my posting today to invest during a crisis. It will help you to get out of the rat race sooner.

Perhaps the last lesson should be that more parents should sign up for science lessons to improve and update their knowledge? ^_^ Happy Weekend.

8 comments:

  1. How many people have the patience to wait for the next crisis and not worrying over their excess cash rotting in the bank?

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  2. How do you define a crisis? By the vix level?

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  3. Hi createwealth888, better be patient than lose the pants?. Haha. Actually I think some of us may have money during the crisis but not the guts to pull the trigger. So my message is not to wait for crisis to happen but be ready to deploy your cash when the crisis happens.

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  4. Hi B, a crisis to me is where the asset prices have fallen to attractive levels and there is fear in the markets. Technician uses VIX as an indication of the "fear climax" but you will probably experience it when u see fear and panic selling in the markets. Have u been through the crisis that have happened previously or were u still young then?

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  5. I think the better way is to set a target level or cut loss level, and getting out of the panicking market when the time is up should be easier with lesser possible losses, depending on what kind of trader u are.

    If u are an investor, then it is time to watch ur positions whether u still want to continue to invest or take money off the table during this "peak" hour.

    If u are a trader, the most important thing is to set a stop loss in ur trades.

    However, it may also be true that when the mass enters, it should mean the time is almost up. The only question is when. Just my 2 cents opinion.

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    Replies
    1. Indeed, one should know if they are investing or trading. Knowing oneself is important ;)

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  6. Hi,

    Not to sound harsh, but I think your first advice is going to be hard to follow. Finding things out for ourselves means that we have to have a preconceived notion about things too. I'm never sure about things, does it mean that I should never have an idea of what to make out of it? Sometimes finding things out for ourselves without proper guidance from others can be a very dangerous thing, depending on one's temperament when it comes to trading/investing.

    For the second pt, I don't think the masses are always wrong. Always is so absolute. Even if they are wrong, it's dangerous to see the world in black or white terms. For example, if nobody is buying then you should buy because the masses are always wrong. You can also choose to wait, or sell less, or buy some, or just do nothing. I'm just saying that if everybody is not buying doesn't mean that you should start buying. Maybe there's really something wrong with the counter.

    You should follow your own advice not to have preconceived ideas about the market ;)

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    1. Hi La Papillion,

      It is okay to have differing opinion. :) My "pre-conceived" ideas about the market is paid with real school fees. hahaha :)

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