The Brazen Bonobo
Fools were certainly around long before Tusser toiled the land and gave us folksy insights into country customs in Tudor England, but the insight of an English farmer over 400 years ago remains just as true today – fools are still parted from their money with relative ease. Indeed, fools continue to walk among us today in their multitudes.
Your gentle Bonobo does not wish to imply that any of his dearest readers are fools, but rather to point out that even the wisest of men can be influenced by the madness of crowds. When thrust together – be it in groups of hundreds, thousands, or even billions – mankind is prone to delusion and irrationality. And so today we regale you with insights into how one might profit from going against the crowd – doing the exact opposite of the broader investing population. In other words, being a “contrarian”.
A contrarian often requires patience because the denizens of this fair planet often “straddle the fence” between foolishness and wisdom. Gradually (albeit unknowingly) they transition from fear to greed . . . and back again. They have a tendency to become bullish when they should already be bearish, then suddenly turn bearish just as a new bull market looms. Any shopper knows that cheaper prices are a good deal, not a bad one. As things become more expensive, however, we should be buying less, or not buying at all. But for those caught up in the delusion, lower prices suck and higher prices are a steal. (Your humble author has been trying unsuccessfully to teach this lesson to the good Lady Bonobo for years!)
For long periods of time the masses may appear neither wise nor foolish, but when they go to extremes there is profit to be made. The average investor is said to climb a wall of worry, then slide down a slope of hope. Investors jump into an established upward trend and worry every day that they have made a mistake. When their mistake is verified for them (in the form of a market top and subsequent correction), they hope the market will stop falling, but to sell out would be to confirm that buying was foolish in the first place. That is emotion at work.
So as Thomas Tusser observed, it pays to hold your money close. While the Bonobo and his followers prefer to safeguard their wealth, they are always looking at what the fool is doing before making rational, intelligent, contrarian investment decisions. When the masses are still investing in a market which is at a top, the contrarian opposes the herd. He does the opposite of what everyone else is doing and believes the exact opposite of what everyone else is thinking. But while everyone thinks him a fool, he is possibly the wisest one of all.
And so it is that those of us who recognize the collective folly of the human race can use that information to improve our own net worth. But to do so we must follow some basic rules. We must see what the fools are doing and distance ourselves by making logical, rather than emotional decisions.
And when the masses are intoxicated by unexplained irrational exuberance, that is when we must stockpile food and water and batten down the hatches. We must take the phone off the hook, lock the doors and windows, draw the curtains, curl up in a ball in the darkest recesses of our bunkers, and wait. Simply wait.
When the bottom is near and the foolish masses are running scared, then we may emerge from our bunkers into sunshine, wallets and cheque books at the ready. And while the herd is crying, we shall laugh; when there is blood in the streets (or at least on Wall Street), we must celebrate.
Then, when the bottom has truly been reached and the herd is afraid to invest, we contrarians can pick up bargains with the enthusiasm of a shopaholic in the January Sales (the Lady Bonobo would be uniquely qualified for the latter pursuit).
Granted, some people are less foolish than others, but mankind (and that includes you ladies) is certainly less clever than it thinks it is. A person who makes the same mistakes over and over again is undoubtedly a fool, and unless he changes this pattern of behaviour, is destined to remain so.
Like wisdom, foolishness is easier to detect when you can sit two men side by side to compare their levels of irrationality. Unfortunately it does not pay to argue with a fool; he will simply drag you down to his own level and brainwash you into thinking that you are one, too.
But rather than shun the fools, we should instead embrace them. For isn’t it true, dear readers, that without the wonderful abundance of fools in the world, the wise men could never gauge what’s going on.
Or as Cicero put it over 2,000 years ago: “The multitude of fools is a protection to the wise.”
The Brazen Bonobo offers penetrating insights into current affairs and the world of finance, enabling high-net-worth expatriates throughout Asia to stay two steps ahead of the curve. If you are an expatriate living in Asia and are searching for advice on tax mitigation, estate planning, UK pension transfers (QROPS), or simply a strategy for prospering in the current economic environment, then contact the Bonobo: advice@brazenbonobo.com