Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics

12/01/2007 12:00 am EST

Focus:

Bill Bonner

Founder and President, Agora Publishing, Inc.

I laughed; I was depressed; I was offended; but I was never bored. Bill Bonner, the president and CEO of Agora, Inc., has teamed with Lila Rajiva on his latest book, which is thought-provoking, aggravating, sometimes preaching, but a worthwhile read.

As the head of a large financial newsletter business, Bonner has been in the catbird seat to monitor investor behavior for decades, and he pulls no punches as he dissects their often head-scratching actions. He points his finger at these ‘public spectacles’ of greed at one tendency—the dynamics of following the crowd.

The authors take a while to get there, leading the reader through more than a few pages of historical—frequently heinous—deeds, perpetrated by villains like Hitler and Stalin, to explain the downside of group behavior.

He leaves no one out, so if you are easily offended, this may not be the book for you. But if you can poke fun at yourself and your affiliations, you are sure to come away with some new insight, as Bonner and Rajiva tear the veil off politics and investing, with a vengeance.

First, they take swings at the Bush administration’s intent to spread democracy by way of the war in Iraq. The objective is not purely slamming the decision, but actually to show how thinking by a few ‘world improvers’ can lead to wholesale acceptance—at least for a while—by the many—of a now regrettable and costly, action.

The book also attempts to show how the human need to feel superior or better off than our group members—accompanied by our unexplainable belief in ‘leaders of the crowd’—have led to self-delusions that fed the current subprime disaster, housing calamity, and a burgeoning debt crisis. Here, the authors take shot at Greenspan’s credit-easing tactics as the precipitator of these predicaments.

Bonner and Rajiva discuss how that same thinking can precipitate bad investing, citing the tech bubble of 2000, the greed of corporate management and hedge funds, and the current (as they see it) over-priced equity markets.

They caution investors that the best way to invest is to stay away from the crowds, and not to get caught in the frenzy of the mob or ‘chumped by Wall Street’.

The authors close their book with specific advice on building wealth, commenting that ‘the vast majority of wealth was made the old-fashioned way, by accumulation. Thrift used to be a virtue; now it is a mystery’. We live in a spend now, pay later society.

Furthermore, markets are unpredictable, infinitely complex and chaotic. They are not—as many investors think—a level playing field.

Bonner and Rajiva suggest that it may be counter-productive to get too far from your investments, meaning that collective investments such as mutual funds, hedge funds, insurance, and pension funds, will generally not make you rich.

Their approach to successful investing is not new. The great investors of all time have consistently proven their point. That is; almost any disciplined approach will work; there is no right way to invest. To make money, you have to buy what is cheap and never buy what someone else really wants to sell or what everyone else is rushing to buy. In fact, they note that sometimes it is best to just do nothing.

The authors leave readers with their current summary of the market: They believe stocks, bonds, and real estate—in the US—are overpriced. But they recommend that readers think about gold and other commodities, as well as selective international investments.

This book is not to be read as a primer on ‘what to buy’ now, but is, instead, meant to make you a better investor by taking the time to reflect more deeply on your investment philosophy—your reasons and motivations for the decision—prior to actually pulling the trigger.

Although lengthy for an ‘investment’ book—if you read it with an open mind—you may find that the pages fly by quickly, and often, humorously.

Related Articles on