The importance of not following the crowd and, instead, developing your own independent plan is certainly true in investing where so many investors seem to follow others and seem to find comfort in “conventional wisdom.” Of course, it always helps to be blessed with good luck!
At Seaside Cemetery in Marblehead, Massachusetts, over 70 years ago, I was given a lifelong lesson in the advantages of not following the crowd, particularly when the crowd was most sure of the rightness of their collective view on what to do and why.
We were Boy Scouts, chosen to march right behind the Veterans of Foreign Wars and the American Legion color guard on Memorial Day in the parade that began downtown at the Historical Society and wound up at Seaside Cemetery. We were to stand at attention as the men—who had outgrown their uniforms horizontally even more than we had outgrown ours vertically—aimed their rifles into the sky and fired the traditional 21-gun salute of remembrance.
We may have been chosen to show support for the VFW and the Legion, but as boys our real reason for being where we were was, to us, obvious. We were hoping to get some of the 21 cartridge shells. “Boys,” said the Commander,
We understood. We were “obedient Scouts”—and sure hoping to get some of those shells!
The salute was fired. The shells were collected. The Commander faced us. We all knew what to do: Be first! We jockeyed anxiously for position, just behind the line, each determined to dash out faster than all the others. The Commander was ten feet away. We were ready.
Then it hit me. If everyone was determined to be first, it might be smart to be last. I decided to be different.
The Commander's hand swung back. “One!” Every boy was ready to pounce. “Two!” The Commander smiled and then, his hand swept forward “Three!” and the boys were off! The shells were bowled perfectly. The boys were fast, all trying to be first to those shells. All the boys but one: me. Being different worked well—very well.
In one minute, having hung back, I'd picked up four shells that had rolled right under all the other boys and into the space where I was the only one looking. Into my pocket they went—and then I piled in with the others. After all, I might find another.
But that's not the point. The point is that when the opinions and behavior of others dominate a situation and its probable outcome, making your own plan is frequently wise, always worth considering, and often quite rewarding.
Making your own plan is the best, and probably the only, way to win The Winner's Game. And it's so easy if you can ignore that rascal, Mr. Market, and stay apart from the crowd that follows him to the Loser's Game. But this requires the kind of learning and experience with data that only professionals can be expected to have, particularly when either the opportunities to get it right or the dangers of getting it wrong are large.
Thoughtful and effective investment counseling is centered on helping investors specify realistic long-term investment objectives and properly structure their strategic portfolio or asset mix. Such counseling is both the opportunity and the challenge facing the investment management profession.
Source: Charles D. Ellis (2011) The Winners’ Game, Financial Analysts Journal, 67:4, 11–17, copyright © CFA Institute reprinted by permission of Taylor & Francis Ltd, on behalf of CFA Institute.