Tuesday, September 2, 1997

Fear, Greed and Cognitive Dissonance
by TMF Runkle

Recently, Fools have written about Wade Cook. It always amazes me how people can make such outrageous claims, yet still attract followers, such as Mr. Cook has done. However, Mr. Cook isn't the first and won't be the last hype artist. I also found it interesting that the Fools got mail from loyal followers of Mr. Cook, insisting his methods are true and genuine.

Could the Fools have been wrong? Could Wade Cook have found a way to make a fortune in the stock market that the Gardners overlooked? The answer to those questions is yes and no, but not in that order. The Gardners could have made a load of money from the stock market by peddling outrageous claims. Further, I doubt the Fools were wrong. Then why did they get such outraged mail?

I suggest the answer lies in what they told us was cognitive dissonance in marketing class. In other words, if you paid a lot of money for something, and discovered it was no good, you would get that cognitive what-ever-it-is. The conflict in you would be great, so you would want to lessen that conflict. One way would be to convince yourself that what you paid the money for was really good, even though you were ripped off. I did that when I bought a whole-life insurance policy years ago. My God, it really was a bargain for only $1,200 a year.

Go to the chat rooms and you'll see the same with people who time and time again bring up penny stocks. I remember one chat room guest had a whole group of penny stocks that he wanted my opinion on. I said "they all stink," which made him rather angry. He insisted Microsoft was once a penny stock. I explained it only looks that way because of many splits; it never was a penny stock. The person got angry and insisted, I, the Fool who has researched penny stocks to death, was wrong. No matter what I said, he clung to the belief that Microsoft was once a penny stock. (I think it went public at $10 a share). It might mean other things his penny-stock broker told him were wrong, and thus he'd been taken. Nobody wants to think that.

In the end, the reason we put money in the stock market is to make money. It's easy for scam artists, and other masters of manipulation, to take advantage of this through our two driving forces, fear and greed. We are afraid we will make a mistake, and we are greedy for more money. Promise great sums of money, and say you will make big mistakes without such and such's help, and you've got followers. Best yet, once they're in, greed is still there, and the fear is now that they will have to admit making a mistake by following you. Hey, Microsoft was once a penny stock, wasn't it? No, it was never a penny stock, and just because you don't want to believe you've been taken doesn't mean you haven't been taken.

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