Some years ago, a young Italian was being examined in a naturalization court. He was asked all the usual questions. But to clinch his right to be a citizen of this great Republic, the judge asked “How many stars are in the Flag?”
“Ninety-six, your Honor” … A flag was hanging on the court room wall. The judge pointed to it and said, “Tony, can’t you count?” … “Yes, your Honor, but have you looked at both sides of the Flag?”
Many stocks will prove to be poor hedges because during the inflation their earning power drops. Numerous companies fail in fast inflations. You cannot stick a pin through the financial page and say, “I’ll take this one for my hedge.” Both the French and German inflations reflected the difficulties in using domestic stocks as hedges.
Or to guess at another “shocking” change, we may see interest-free government bonds some day.
Tell “em again and again, without explanation or proof, and in time the crowd will believe what you tell ’em.
A government doesn’t go around quietly asking people if they wish to go to war. A series of charges against the “enemy state” is trumped up; cries against the aggressor pour forth, as the propaganda machine gets in motion. An image is fashioned in the peoples’ minds of this dangerous, armed “imperialist” who is about to take their homes and ruin their existence.
The “crowd” is most enthusiastic and optimistic when it should be cautious and prudent; and is most fearful when it should be bold.
You can anticipate either one of two (or more) trends or events–or you may anticipate both, awaiting further developments prior to settling upon which you think is the more probable.
You may have all the statistics in the world at your finger tips, but still you do not know how or when people are going to act.
Collective action, from united predictions, often pushes the pendulum too far in one direction–thus upsetting the “timing” and the momentum previously expected. Just as overloading will throw a machine out of gear, so will an overweight (of one-way action) throw the economy out of gear.
In stockmarket parlance, the public is right during the trends but wrong at both ends!
So to be cynical, you might say, “Yes, the public is always wrong when it pays to be right–but is far from wrong in the meantime.”
