When Everyone’s a Genius (A Few Thoughts on Speculation)



The end of a speculative boom can be inevitable but not predictable. Unsustainable things can last a long time. Identifying something that can’t go on forever doesn’t mean that thing can’t keep going for years. Years and years and years.

Part of it is emotion. During the Vietnam War Ho Chi Minh said, “You will kill ten of us, and we will kill one of you, but it is you who will tire first.” Emotional trends aren’t beholden to logic, which can keep them going far past any point of reason.

Part is storytelling. Unsustainable trends have life support if enough people think they’re true, and once people believe something’s true it gets hard to convince them it’s not. Or put differently: If enough people believe it’s true it’s just as powerful as actually being true.

Every investor is making bets on the future. It’s only called speculation when you disagree with someone else’s bet.

In hindsight there was as much speculation in the 1990s that Kodak and Sears would keep their market share as there was that eToys and Pets.com would gain market share. Both were bets on the future. Both were wrong. It happens.

Of course there’s a speculation spectrum. But let’s not pretend that others speculate while you only deal with certainties.

The willingness to believe crazy things increase when it feels like the world is dangerous and falling apart. Chronicling the Great Plague of London, Daniel Defoe wrote in 1722:

The people were more addicted (Read more...)