This Motley Fool series examines things that just aren't right in the world of finance and investing. Here's what's got us riled up this week. If something's bugging you, too -- and we suspect it is -- go ahead and unload in the comments section below.
Today's subject: In these contentious times, too many people cling fiercely to ideas or opinions they've fallen in love with, even when the facts defy them. In investing, this irrational preference for rage over reason manifests itself as a disorder I've dubbed Sirius Syndrome. This malady's not only unpleasant to live with, but can also wreck your portfolio.
Why you should be indignant: The stock market can be highly irrational in the short term, and sufferers of Sirius Syndrome only make it worse. These cultish folks go into attack mode if anybody brings up a bearish premise that dares to contradict the assumptions they hold about their favorite stock, or requires them to expend a few of those wonderful things we call "brain cells" to calmly assess.
Why "Sirius Syndrome"? For years now, the mere whiff of a negative observation about Sirius XM
To be fair, this mentality doesn't end with Sirius. Back in 2005, I noted that any negative sentiment about Apple
In 2007, when I pointed out burgeoning inventories at Crocs
What now: If you're insulting reasonable people who disagree with your premise, both your portfolio and your ego are likely cruising for a bruising. Hubris and overconfidence can ruin an investor. Sure, I was happy to see that my pick for Best Stock for 2009, Starbucks
Embracing a diversity of opinions, rather than marching in intellectual lockstep along a single narrow course, helps investors create a more robust market. Michael Mauboussin, author and chief investment officer for Legg Mason, has argued that when markets lose this cognitive diversity, they're more likely prone to sink into excess -- and create opportunities for savvy contrarians. Wouldn't we all rather be on the profitable side of that divide?
Mauboussin has also championed the importance of diverse thinking in generating excess returns. He cites empirical evidence from psychologist Phil Tetlock's study in the book Expert Political Judgment, in which predictions made by 300 experts over a 15-year timeframe showed a disappointing tendency to fall flat. However, trends within that data revealed that people with more diverse thoughts and opinions made better predictors.
If you're thinking just like the crowd -- and unable to process or accept differing points of view -- you risk making grave and significant misjudgments about your stocks. Add emotion to the mix, and, well, look out below!
I'm not saying everybody should always agree with me, or with anybody else. We should celebrate differences of opinion, use critical thinking to assess the data at hand, and then make up our own minds (or maybe even change them). And in all fairness, people who invested in Sirius, Talbots, and Crocs at their lows, despite others' bearishness, have enjoyed price appreciation. If you're right, the long haul will prove it.
Shame on investors whose cultish zeal leads them to outright reject rational arguments -- and to insult, threaten, or otherwise hate on anyone who disagrees with them. Personal insults and fabricated theories just aren't polite. More importantly, they can cause big trouble for your portfolio when all is said and done.