Everyone Believes It; Most Will Be Wrong: Motley Thoughts on Investing and the Economy

by Morgan Housel

The value in researching bad predictions is not to point fingers at those who have gotten it wrong. It's to point fingers at those who listen to and put faith in those predictions, assuming that suddenly, this time, experts can accurately see the future when history shows, conclusively, that they can't. It's not the experts, but the people who listen to the experts, who are the real fools.

1980s: Japan will take over the globe In 1986, Gore Vidal wrote that in the face of Japan's climb to economic dominance, "There is only one way out. The time has come for the United States to make common cause with the Soviet Union." His advice on the Soviets was provocative, but the idea that Japan owned the future was nearly ubiquitous. In 1991, former MIT dean Lester Thurow, wrote that, "If one looks at the last 20 years, Japan would have to be considered the betting favorite to win the economy honors of owning the 21st century." In 1988, former Reagan official Clyde Prestowitz said, "The American century is over. The big development in the latter part of the century is the emergence of Japan as a major superpower.”

There are only a few ironclad rules of investing. One is that there's a negative correlation between sentiment and future returns. When the public expects outsized returns, they practically guarantee otherwise. When people won't touch an asset because they think it's toxic, the stage is set for outperformance.