Mobs, Messiahs, and Markets

Never Buy What Everyone Else Is Rushing to Buy

Yogi Berra once remarked of a restaurant—“Oh, nobody goes there anymore; it's too crowded.” In the restaurant world, good eateries soon become overcrowded; service deteriorates and prices rise. In the investment world, too much capital quickly ends up chasing too few good opportunities. A good deal is a good deal only so long as too many people don't try to take advantage of it.

That's why initial investors in a new trend often do well. They are able to choose the best opportunities at the most reasonable prices. Those who come along later have progressively less and less choice at progressively higher and higher prices. As prices rise, so do expectations. But as expectations rise, thinking declines. Logically, as the amount of money flowing into a market increases, prices should rise and the attractiveness of the opportunities should recede. But investors are not merely thinking beings—and not even primarily thinking beings. That they think at all is open to argument. That they let themselves be driven by emotions is beyond question.

But we have to admire the symmetry of it. A market that is a public spectacle needs most investors to do the wrong thing at the wrong time. If investors knew what was coming, the trend would not climax and you would get a kind of sterile spectacle interruptus, with no fruit, no boom, no bust, no laughs. The future would be discounted, marked to market, and condensed down to a single moment, now. Time ...