I plan to write about the effects of stupidity, my own included, at more length. However, I thought a brief, preliminary observation might be of interest.

A classic example of stupidity, by often intelligent people, is the “study” of economics. In an attempt to appear scientific, economists develop mathematical models that presume to predict future economic outcomes.

They don’t, of course; people’s decision making, and thus the economy, do not follow arcane economic models.  Further, stupid people make stupid decisions that cannot possibly be predicted by an economic model. And as Einstein says, there is an inexhaustible pool of stupidity.

An example of widespread stupidity in the investment space is the lemming-like rush to follow the latest trend. Just think of the insane valuations of the tech sector up to the 2002 crash. Even today Amazon trades on a P/E of 177.8.

In the junior resource space, there is always a hot sector where underlying fundaments are completely ignored. Take lithium, the USGS estimates that the world has sufficient resources for around 1,400 years of supply at the current rate of consumption. And yet there are dozens, if not hundreds, of companies that plan to be lithium producers, most of them overvalued.

However, if you are in a hot sector, do know that it can run much further than anyone would rationally think. Stay invested but be ready to bail, don’t just stay with the herd.

Anyway, some quotes on stupidity you may enjoy:

Never assume malice when stupidity will suffice

Hanlon’s Razor

Two things are infinite: the universe and human stupidity; and I am not sure about the universe

Albert Einstein

Forgetting our objectives is the most frequent of all acts of stupidity

Nietzsche

Evil isn’t the real threat to the world. Stupid is just as destructive as Evil, maybe more so, and it’s a hell of a lot more common. What we really need is a crusade against Stupid. That might actually make a difference.

Jim Butcher

Never underestimate the power of stupid people in large groups.

Anonymous

Think of how stupid the average person is, and then realize half of them are stupider than that.

George Carlin

12 May 2017 Markets 34 Comments