Mobs, Messiahs, and Markets

Never Expect the Market to Give a Sucker an Even Break

We are as suspicious of public markets as we are of public toilets. But the average investor believes he can buy a stock in the public markets at the market price and get a fair deal. It isn't so.

Traditionally, most people were smart enough to know that the stock market was no place for an honest working man. The proles and plebes put their money in banks; earned a fixed, reliable rate of return; and left the speculation in equities to the pros. Even today, in much of the rest of the world, people know better. Ordinary people are not fool enough to think they can beat the insiders at their own game.

“Here in Argentina,” an economist explained to us, “most people put their money in the bank or buy property with it, because it is something they understand.”

Argentina has been through inflation rates as high as 1,000 percent, major depression, debt default, a currency crisis, bank closings, and a stock market crash—all in the past 10 years. What the Argentines don't know about financial risks, in other words, isn't worth knowing.

But in the United States, the lumpeninvestoriat has not faced such challenges in more than 70 years. It sees almost no risks at all. It thinks it can invest—and invest like the pros.

Some things, we all recognize immediately, are simply too amazing for words: Shakespeare. Mozart. Sex. Air transportation. And the attitude of amateur investors in the United States, circa 2007. They leave us in shock and ...