HERDS CROWDS CONTRARIANS
“The foolishness of the many is the opportunity of the few.” Dickson G Watts
“Only dead fish go with the flow.” David Ogilvy
“Each one of us in his opinions and his conduct, in matters of amusement, religion, and politics, is compelled to obtain the support of a class, of a herd within the herd.” Edward Bernays
“Do something original. Don’t run with the pack. If everyone is trying to solve the same problem ... don’t do that.” Jim Simons
"The market is a crowd, and if you've read Gustave Le Bon's 'The Crowd' you know a crowd is a composite personality." Adam Smith, The Money Game
"No matter what role the investor has started with, in a climax on one side or the other the role melts into the crowd role of greed or fear. The only real protection against all the vagaries of identity playing, and against the final role of being part of the crowd when it stampedes, is to have an identity so firm it is not influenced by all the brouhaha in the marketplace." Adam Smith, The Money Game
"Mimicking the herd invites regression to the mean." Charlie Munger
"Prices are often more inefficient where crowds are small." William Browne
“Good investing is a minority sport, which means that in order to earn returns better than everyone else we need to be doing things different from the crowd.” Nick Sleep
"According to Le Bon, the crowd loves simple suggestions. Understandably, it is incapable of complex reasoning. Imagine the edge one has if one simply disassociates himself from the crowd." Frank Martin
"Le Bon basically said that when one joins a crowd – when one becomes part of the herd – he tends to function at a much lower level. In the capital markets – because of the Bloomberg terminal, because of instantaneous communications, because everything is live and online – we can create instantaneous synthetic crowds." Frank Martin
"In the sheep market, people try to guess what the crowd will do, believing they can be swept along in a favourable current. That can be dangerous. The crowd maybe very late in acting. Suppose it's an institutional crowd. Sometimes they over-influence each other and are the victims of their own habits. Sheep investors are very susceptible to suggestion. It's much better to do your own research and choose stocks on their merit than it is to take tips you really can't substantiate." Roy Neuberger
"Berkshire buys when the lemmings are heading the other way." Warren Buffett
"Never follow the crowd." Bernard Baruch
"I took rapidly to arguing with the marketplace." John Neff
"If you want to stand out from the pack, you have to stand outside the pack." Ralph Wanger
"The crowd is usually wrong on the market." Stanley Druckenmiller
“Buy when everyone else is selling and hold until everyone else is buying.” J. Paul Getty
“The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong.” Ray Dalio
“Look at the numbers and think for yourself. All the great investors do, and that’s what makes them great.” David Abrams
"Being “right” doesn’t lead to superior performance if the consensus is also right.” Howard Marks
“In the top financial ranks are disproportionate numbers of contrarians (This makes perfect sense, since investors too deeply wedded to conventional wisdom will perform only as well as the bulk of the crowd).” Leon Levy
“Our trading models actually tend to be contrarian, buying stocks recently out of favor and selling those recently in favor.” Jim Simons
"You need to avoid crowd judgement." Bruce Kovner
"Acquiring knowledge of the psychology of crowds not only teaches one about the beguiling and insidious dangers of embracing crowd-think - sometimes termed groupthink - but, forewarned and thus forearmed, the erudite investor is less likely to succumb to its often ruinous reasoning." Frank Martin
“There is a very important difference between being a theoretical contrarian and dealing with it in practical terms. In order to win as a contrarian, you need the right timing and you have to put on a position in the appropriate size. If you do it too small, it’s not meaningful; if you do it too big, you can get wiped out if your timing is slightly off. The process requires courage, commitment and an understanding of your own psychology.” Michael Steinhardt
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.” Ben Graham
“When views are truly contrarian, they are inevitably uncomfortable. Courage and the ability to withstand pain are required.” Michael Steinhardt
“I call myself a contradictionist, if that’s a word. I’m just looking for ideas that contradict logic or contradict sober thinking, and yet have become warmly embraced.” Jeffrey Gundlach
“Non-consensus ideas have to be lonely. By definition, non-consensus ideas that are popular, widely held or intuitively obvious are an oxymoron.” Howard Marks
“It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success.” Seth Klarman
“When everybody is on one side of the boat, you should go to the other side.” Jim Rogers
“Having a variant perception can be seen benignly as simply being contrarian. The quintessential difference, that which separates disciplined, intensive analysis from “bottom fishing” is the degree of conviction one can develop in one’s views.” Michael Steinhardt
“Unanimity of opinion is a danger sign. When everybody thinks that interest rates are going to remain lower or go lower, Look out.” Shelby Davis
“Contrarian behaviour lies at the heart of most successful investment strategies. Unfortunately for investors, human nature craves the positive reinforcement that comes from running with the crowd.” David Swenson
“Much has been written in the literature of investments on the importance of contrary opinion. Contrary opinion, however is not enough. I have seen investment people so imbued of the need to go contrary to the general trend of thought that they completely overlook the corollary of all this which is: when you do go contrary to the general trend of investment thinking, you must be very very sure that you are right.” Phil Fisher
"You have to be an independent thinker because you can’t make money agreeing with the consensus view, which is already embedded in the price. Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble.” Ray Dalio
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” Charles Mackay
“Training oneself not to go with the crowd but to be able to zig when the crowd zags, in my opinion, is one of the most important fundamentals of investment success.” Phil Fisher
“Markets are in a constant state of uncertainty and flux and money is to be made by discounting the obvious and betting on the unexpected.” George Soros
"Following the stock market squad is rarely a winning strategy." Francois Rochon
"The stock exchange is only a crowd. If you don't understand that, you can't understand the way to invest." Francois-Marie Wojcik
"Windsor's success flowed ultimately from our willingness to step outside the crowd's embrace and be exposed to the risk of embarrassment." John Neff
“One of the few sure ways to make money is to have a view that is off-consensus and have that view turn out to be right. To be contrarian is not enough. You have to be right. Contrarian in a plus. To be contrarian and be right on you judgement is when you get the golden ring. It doesn’t happen that much but when it does happen you make extraordinary amounts of money.” Michael Steinhardt
“At its heart we are trying to be people of good judgement and do intelligent things with money and this necessitates that our stock picks are contrarian.” Nick Sleep
“When you’re within the consensus you should start to worry. You don’t want to be in a consensus at any time.” Martin Sosnoff
"You do best when your investments are controversial - when you stray farthest from the herd." Ralph Wanger
“You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you. You will be right over the course of many transactions, if your hypothesis are correct, your facts are correct, and your reasoning is correct.” Warren Buffett
“Contrarian investment behaviour requires shunning the loved and embracing the unloved. Most people do the opposite.” David Swenson
“Huge profits are frequently available to those who zig when most of the financial community is zagging, providing they have strong indications that they are right in their zigging.” Phil Fisher
“It is impossible to produce superior performance unless you do something different from the majority.” Sir John Templeton
"Sooner or later the market will do what it has to do to prove the majority wrong." Peter Cundill
“Great investing requires an independent spirit, and the courage to acquire assets the crowd disdains. Disdain creates bargains” Shelby Davis
"An ability to detach yourself from the crowd — I don’t know to what extent that’s innate or to what extent that’s learned — but that’s a quality you need." Warren Buffett
“Our contrarian nature reflects a fundamental belief that you don’t make money doing what everybody else is doing and that the balance of risks tends to be more in your favour when everybody is scared than when everybody is happy.” James Hunt
“It’s very hard to resist, mostly during bear markets and panics, the call of the herd. And if you can’t resist following the others, it’s almost impossible in the long run to beat the index.” Francois Rochion
“Almost by definition we are running towards that which most people are running away from because how else are you going to get a very reasonable, cheap price on a good company unless the marketplace believes something is terribly wrong.” Bruce Berkowitz
“When times aren’t good I’m still here. You find bargains among the unpopular things, the things everybody hates. The key is you must have patience.” Peter Cundill
"Most people get interested when everyone else is. The time to be interested is when no one else is. You can't buy what is popular and do well." Warren Buffett
“Following what everyone else is doing maybe hard to resist, but it is also unlikely to be associated with good investment results.” Nick Sleep
"We get comfort from the consensus, but making the same investment choices as a large number of other intelligent people almost mathematically insures you’ll do the wrong thing at the wrong time because security prices reflect that consensus." Staley Cates
"None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What's required is thinking rather than polling. Unfortunately, Bertrand Russell's observation about life in general applies with unusual force in the financial world: "Most men would rather die than think. Many do." Warren Buffett
"A warning: Do not bask in the warmth of just being different. There is a thin line between being contrarian and just being plain stubborn. I revel in opportunities to buy stocks, but I will also concede that at times the crowd is right. Eventually, you have to be right on fundamentals to be rewarded." John Neff
"As is the case with unconventionality, you should not aim for contrarianism for its own sake, but only when the reasons are good and the actions of the crowd look particularly foolish." Howard Marks
"We are contrarian, not for the sake of being contrarian, but contrarian as a result of our research work to find bargains. Three decades of experience have taught me that this is the safest investment approach and the safest way to meet our investment objectives." Bruce Berkowitz
“My good friend Joel Greenblatt, an exceptional equity investor, provided a very apt observation regarding knee-jerk contrarianism: “...just because no one else will jump in front of a Mack truck barrelling down the highway doesn’t mean that you should.” In other words, the mass of investors aren’t wrong all the time, or wrong so dependably that it’s always right to do the opposite of what they do. Rather, to be an effective contrarian, you have to figure out: what the herd is doing; why it’s doing it; what’s wrong, if anything, with what it’s doing; and what you should do about it.” Howard Marks
“One of the things I’ve learned over the years is that with a lot of securities, you have to buy them when nobody wants them.” David Abrams
"It's not impossible but the odds are against you if your view is the same as everybody else's because that view is probably already reflected in a stock's valuation. Our most successful investments tend to be where our research process has led us to a conclusion that is different than the perspective commonly held by most investors." Lee Ainslie
“What’s clear to the broad consensus of investors is almost always wrong.. the very coalescing of popular opinion behind an investment tends to eliminate its profit potential.” Howard Marks
"Our ideas will sound wrong to most people. Any investment policy followed by all naturally defeats itself. Thus, the first step for the individual really trying to secure or preserve capital is to detach himself from the crowd." Gerald M. Loeb
"It is my assertion that what makes a great fund manager first and foremost is the ability to establish a contentious premise outside the existing belief system and have it go on to become adopted by the broader financial community." Hugh Hendry
"What I am really looking for is a consensus that the market is not confirming. I like to know that there are a lot of people who are going to be wrong.” Bruce Kovner
“Even the intelligent investor is likely to need considerable willpower to keep from following the crowd.” Benjamin Graham
"We focus on the facts of an investment case and ignore the crowd." Bruce Berkowitz
“I would recommend that private investors tune out the prevailing views they hear on the radio, television and the internet. They are not helpful. People say ‘buy low, sell high’, but you cannot do this if you are following the herd.” Irving Kahn
"I think is is very useful to develop a contrarian cast of mind." Peter Cundill
"Savvy contrarians keep their minds open, leavened by a sense of history and a sense of humour... Ready-made contrarian formulas supply prescriptions for failure." John Neff
“The hardest trait for humans is they are adverse from stepping away from the crowd. So having no concerns about how people think about you based on what actions you take is a very important trait. And having no stress about it.” Mohnish Pabrai
“First, we seem to assume that if a lot of people are doing the same thing, they must know something we don’t. Especially when we are uncertain, we are willing to place an enormous amount of trust in the collective knowledge of the crowd. Second, quite frequently the crowd is mistaken because they are not acting on the basis of any superior information but are reacting, themselves, to the principle of social proof.” Robert Cialdini
"Successful investing requires that you have a different view from the consensus - but that view also needs to be right." Chris Parvese
“The consensus thinking is generally wrong. If you go with a trend, the momentum always falls apart on you. So I buy companies that are not glamorous and usually out of favour. It is even better if the whole industry is out of favour.” Carl Icahn
"Being a contrary investor – thinking and being ahead of the pack – is intellectually exciting and keeps me in love with the business.” Ed Wachenheim
"All of the consensus is already baked into the price. In order to be correct in the markets, in order to make money in the markets, you have to see something that the consensus doesn't see. So you have to have an independent point of view. Very different than most other professions. Most other professions you can build on existing knowledge. You don't have to have a point of view. If you're a doctor and somebody breaks a leg or whatever, you can repair that leg. It's not zero-sum, in the sense that you have to be smarter than the next person or different from the consensus." Ray Dalio
"The only way for investors to significantly outperform is to periodically stand far apart from the crowd, something few are willing or able to do." Seth Klarman
"The rewards of standing apart from the crowd and investing intelligently, even when it is not “popular” or rewarded in the short term, are substantial over the long term." CT Fitzpatrick
"When everybody is on one side of a market, it has nearly always proven to be wrong. We human beings have not changed in hundreds of years, so we are still guided by the same fears and aspirations." Jim Rogers
"The majority isn't always wrong. It's just the odds aren't good on the majority's side. So you've got to make sure that you aren't doing this [being contrarian] just to be difficult. It is useful only if it's in shareholders' interests. But the marketplace gives you very good odds because there is a great deal of groupthink out there." John Neff
"Effective money managers do not go with the flow. They are loners, by and large. They're not joiners; they're skeptics, cynics even. Whatever label you want to put on them, the trait they all share is that they don't automatically trust that what the majority of people - especially the experts - are doing is necessarily correct or wise. If anything, they move in the opposite direction of the majority, or they at least seek out their own course." Scott Fearon
"The hardest thing over the years has been having the courage to go against the dominant wisdom of the time, to have a view that is at variance with the present consensus and bet that view. The hard part is that an investor must measure himself not by his own perceptions of his performance but by the objective measure of the market. The market has its own reality. In an immediate, emotional sense, the market is always right. So if you take a variant point of view, you will always be bombarded for some period of time by the conventional wisdom as expressed by the market." Michael Steinhardt
"It has rightly been said that all investors worth their salt must have a contrarian streak in them. If you go with the consensus, your performance will be consensus - ho-hum average." Ralph Wanger
"We at Baupost march to our own drumbeat, unafraid to stand apart from the crowd." Seth Klarman
"With a little help from an obscure Frenchman [Gustave Le Bon], years ago I concluded that investment success is more likely to come to those who have some clue about the counterintuitive way that the thought processes and subsequent behaviors of crowds differ from individuals in isolation. Individuals who submit to the will of a crowd are effectively hypnotized, and behaviours become emotional, impulsive, and difficult to terminate." Frank Martin
"I have a saying: "If everyone is going left, look right." Sam Zell
"For the most part, following what everyone else is doing is rarely a way to get rich. You may make money that way for a while, but keeping it is very hard." James Rogers
“Watch which asset classes they’re holding conferences for and how many people are attending. Sold-out conferences are a danger sign. You want to participate in auctions where there are only one or two buyers, not hundreds or thousands.” Howard Marks
“As a recent goldbug conference, virtually all the speakers were bearish. I said to myself, ‘Gold is probably near a bottom.’” Ed Seykota
“Nor will I buy market-favored stocks. I particularly notice it when I attend meetings for technology stocks and see all the people crowding into the room and so on. If there's standing room only, that's usually a pretty fair sign it's not a good time to buy the stock.” Phil Fisher
"If you can put your finger on what other investors think of the world – what they want, what they expect, where they see it going – your ability to exploit opportunity by being a contrarian is powerful. And I think a lot of people can actually do that. But most don’t, because they care what other people think of them, and taking the other side of a popular view doesn’t make you look smart. Your boss won’t like it. Your friends won’t like it. Your investors won’t like it. Contrarian thinking makes a big leap when it’s mixed with indifference to looking like an idiot." Morgan Housel
“Something needed to be able to outperform is what I call the missing gene. Think of a human beings as having a tribal gene that makes them follow the tribe; when all the humans are running on the left side, 95% of people will follow the crowd and 5% of people are able to go on the right side if they believe that’s the right way to go. And those people, for some reason don’t have the tribal gene, it’s almost a defect because it’s something that’s been passed down for the last 20,000 years because we were chased by tigers, elephants that we were hunting. When you don’t have that gene, the odds of out-performing are much better. So I think a large part of success is almost from the start, your genes. Of course, I don’t have any proof of that, it’s just my own theory. I always wonder why so many people aren’t able to be contrarian. I think it’s because the human body has that gene in it. On average, it’s a good thing to be able to follow the tribe, but in the investment world, you wanna be able to think on your own and not follow blindly the other investors. I think it is one very important key of success.” Francois Rochon
“Part of real success is not being a 100% contrarian. When people saw that the automobile was going to obsolete the old streetcar system in the cities, some decided that since nobody would want streetcar stocks, they’d buy them. That is ridiculous. But being able to tell the fallacy in an accepted way of doing things, that’s one of the elements in the investment business of big success.” Phil Fisher
Further Reading:
‘The Crowd: A Study of the Popular Mind,’ Gustave Le Bon, 1895.
‘The True Believer: Thoughts on the Nature of Mass Movements,’ Eric Hoffer, 1951.