147147
See also: Stand out in the market 28–31 ■ Gaining an edge 32–39 ■ Beware the yes-men 74–75 ■ Thinking outside the
box 88–89 ■ Avoid groupthink 114 ■ Protect the core business 170–71 ■ Forecasting 278–79
assets have dropped in value. They
often suffer serious losses. A
contrarian investor—or a savvy
company that holds a portfolio of
investments—does the opposite.
When share prices rise and new
investors are attracted into the
market, they sell, and if the market
slumps, they buy. However, few
investors show the foresight required
to know when a boom is turning to
bust. Warren Buffet, a legendary
investor, says: “We simply attempt
to be fearful when others are greedy
and to be greedy only when others
are fearful.” Between 1965 and 2013,
Buffet’s investment company gave
investors a capital gain of more
than 900,000 percent.
An example of the risks of following
the herd came with the dot-com
bubble, between 1998 and 1999.
Among numerous examples of
extraordinary share-price gains
followed by equally huge losses,
was the business eToys.com,
which was opened in 1997. In May
1999 it was launched onto the New
York Stock Exchange at $20 per
share, raising $166 million. Buyers
piled in, pushing the price up to
$76 by the end of the first day. By
fall 1999, the share price was $84,
giving the business a higher
market value than the retail giant
Toys R Us. As the market turned
downward, the experts started to
sell, leaving the herd with theshares. And by February 2001, the
share price had fallen to 9 cents.
A little later the business was
declared bankrupt. ❯❯MAKING MONEY WORK
...stampede to buy
shares in high-trend
businesses, or buy them
completely....buy other businesses
because of a current
market trend in
diversification....develop “me too”
products rather than
follow logical strategy.Companies follow herd instincts when they...These actions are unlikely to be financially beneficial.Swim upstream. Go the other way.
Ignore the conventional wisdom.The herd instinct among
forecasters makes sheep look
like independent thinkers.
Edgar R. Fielder
US economist (1930 –2003)