Glamor Economics

Chapter 173

Chapter 22 Section 2 Don't Be the Last Idiot - The Biggest Idiot Theory

From 1908 to 1914, the economist Keynes desperately made money.He taught everything, including principles of economics, monetary theory, and securities investment.Keynes was described as "a machine that sells economics by the hour".

The reason why Keynes worked so hard was to be able to freely and concentrate on academic research in the future without being troubled by money.However, how much money can you save just by giving lectures?

Finally, Keynes began to wake up. In August 1919, Keynes borrowed several thousand pounds for forward foreign exchange speculation. After 8 months, he made a net profit of more than 4 pounds, which is equivalent to his income from lecturing for 1 years.

It is easy to make money in speculative business, but it is also easy to lose money.Speculators often have this kind of experience: the jump at the beginning is often unexpected, and the money enters their own pockets inexplicably, and suddenly falls into the abyss when they are fluttering.After another three months, Keynes lost all the profits he earned and the borrowed principal.Like gamblers, speculators often have the mentality that they must win back what they lose.Half a year later, Keynes dabbled in cotton futures trading again, and made a wild bet with great success. Since then, he has been out of control and almost made all kinds of futures.He didn't think it was exciting enough, so he went to speculate in stocks again.By the time Keynes died of illness in 3, he had accumulated a huge wealth that he could not enjoy throughout his life.Unlike ordinary gamblers, he left behind a very explanatory pardon—the theory of the biggest fool.

What is the "biggest idiot theory"?Keynes once said: Choose the face you think is the most beautiful from 100 photos, and there will be prizes for the selection. Of course, the most beautiful face will be determined by the highest number of votes in the end.How should you vote?The correct way is not to choose the face that you really think is the most beautiful, but to vote for whoever the majority of people will choose, even if she is ugly.

Speculation is based on guessing at the psychology of the masses.The same is true for real estate speculation.For example, you don't know the true value of a certain suite, but why would you buy it at a price of 5 yuan per square meter?Because you expect someone to pay a higher price to buy it from you.The continuous speculative frenzy in Chinese and foreign history is the best explanation for the theory of the biggest fool.

In 1593, a Viennese professor of botany went to Leiden, the Netherlands to teach. He brought a plant cultivated in Turkey that the Dutch had never seen before - tulip.Unexpectedly, the Dutch were fascinated by it, so the professor decided that he could make a lot of money, and his price was so high that the Dutch had to steal it.Late one night, a thief broke into the door, stole all the tulip bulbs brought by the professor, and quickly sold out the bulbs at a price much lower than the professor's price.

In this way, tulips were planted in the gardens of thousands of households.Later, tulips were attacked by mosaic disease, a virus that caused the petals to develop colored streaks or "flames."Dramatically, diseased tulips became such a rarity that the more outlandish a tulip bulb was, the more expensive it was.So someone started hoarding diseased tulips, and more people paid a premium to buy them from the hoarders and sold them at a higher price. In 1638, the biggest fool appeared, and the tulip mania that lasted for five years ended tragically, and the price of bulbs fell to the price of an onion.

The British stock speculation frenzy that began in 1720 had such an episode: an anonymous person created an unfounded company, and no one knew what it was from the beginning to the end, but nearly a thousand investors rushed to subscribe and knocked down the door.Not many people believed that it was really profitable, but expected bigger suckers to show up, the price would go up, and they would make money.Interestingly, Newton also participated in this speculation, and unfortunately became the biggest fool.Therefore, he sighed: "I can calculate the movement of celestial bodies, but the madness of people is really hard to estimate."

The purpose of investors is not to make mistakes, but to expect a bigger fool to replace themselves and benefit from it.No one wants to be the biggest fool, but investors who don't know how to speculate often become the biggest fools.So how do you keep yourself from being the biggest fool when it comes to investing and speculating?In fact, as long as you guess the public's thoughts correctly, you will win the speculation.

If you want to know whether you will become the biggest fool, in addition to knowing yourself deeply, you also need to have the ability to accurately guess and judge the psychology of others.

[links to related words]

What the Big Folly theory wants to reveal is the motivation behind speculative behavior. The key to speculative behavior is to judge whether there is a bigger idiot than yourself. As long as you are not the biggest idiot, you must be a winner. .If you don't have a bigger idiot willing to pay a higher price for your "next home", then you are the biggest idiot.It can be said that any speculator believes in nothing more than the biggest fool theory.

(End of this chapter)