John Maynard Keynes
Fail with the crowd
Professionals are often dodging blame, not judging value
The General Theory of Employment, Interest and Money, chapter 12, 1936
I'm not sold on it, I just can't be the only one who didn't buy. This page asks whether that fear is judging value or dodging blame.
What actually happened?
In chapter 12 of the General Theory, Keynes compared professional investing to a newspaper contest of the day: pick the six prettiest faces from a hundred photographs, and the prize goes to whoever comes closest to the average choice of all the entrants. The clever entrant does not pick the face he finds prettiest, nor even the one the crowd truly finds prettiest. He tries to guess what the crowd expects the crowd to think. That, Keynes said, is the game the professionals play.
You are guessing opinion, not value
He said the contest reaches a third degree, where we devote our intelligence to "anticipating what average opinion expects the average opinion to be." Whether a price rises depends less on what a thing is worth than on what people think other people think.
You don't rate a stock, but you're sure everyone expects everyone else to buy it, so you buy it too.
Failing together is safer than being right alone
He wrote: "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally." If everyone is wrong together, nobody is singled out. A lone bet that fails can cost you your name.
A fund manager who loses with the whole sector says the market fell. One who backs something unloved and loses explains himself for a year.
Before you follow, ask what they are dodging
Those who manage other people's money are judged over short periods, he noted, which pushes them to avoid blame rather than judge worth. So when everyone seems to be buying, ask how many are measured quarterly. Their reason may not be yours.
A share held by dozens of institutions may not be loved by each. Each may fear being the one who doesn't own it.
How do I use it today?
Where you are: Everyone is buying something, you haven't, and it nags at you.
Ask first: Am I tempted because I have priced it, or because if it goes wrong with everyone else, I won't look foolish? If the second, treat the money as buying company, and cap it.
Where it goes wrong: Reading it as "the crowd is always wrong." He did not say that. He said many in the crowd are guarding their reputations, not judging value.
Lines to keep
Fail with the crowd and nobody blames you.
The crowd is guessing at the crowd.
Fear of standing alone is not a valuation.
Same situation, other people are asking
Everyone agrees it's a good bet. Is that already in the price?It's obviously overheated. Why does it keep going up?Am I early, or am I just the last one in?Someone I know got rich on this and I can't sit still.Everyone is piling in · all 7 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.