The Idiot Doctrine
I’m not going to tell you how much money my friend Scott made last week on the stock market, but let’s just say it was north of 400,000. He told me how he did it (spoiler: it’s easy). First, let me tell you about his brother Ivan. Ivan has 200,000 dollars in his account. Not as much as Scott, but still a stupendous sum for a man of his age. His trick is pretty simple, but you probably don’t have enough money for it, so don’t get any ideas. Ivan made his fortune the old fashioned way: he put 250,000 dollars into the stock market. Now I know what you’re thinking. This guy sounds like an idiot. But here’s the catch: actually, Ivan’s not the idiot. Scott is the idiot.
Ivan has saved up a lot of money working as a programmer over the last decade. He brings the same analytical cast of mind to investing: he investigates a company thoroughly before he purchases its shares. For example, he knows the new regime wants to mandate masks, and having determined their shares were not overvalued, he bought CVS. That sort of thing. He looks at all the statistics and ratios and hesitates before he buys, and when he does it’s usually in small chunks. Selecting what he thought were premier enterprises, he eventually moved his substantial savings into a balanced portfolio so that his money could grow, in the words of his financial advisor. Ivan would like to buy a house.
Scott, on the other hand, YOLOs his entire life savings into meme stocks that he’s never heard of. He says he feels empowered by the democratization of investing. Last Monday, for example, he put $25,000, everything he owns, into extremely risky call options expiring that same Friday for GameStop. His returns were outsized: he now has more than twice as much as Ivan. How does Scott do it, and why does Ivan fail?
The Idiot Doctrine goes like this: the stock market is powered by idiots. When a pump-and-dump scheme is afoot, idiots rush in like hungry barbarians toward a roasting hog—it’s madness. So when the idiots buy, the stock goes up—short-term price movements often reflect group psychology, and here we’re talking about a group of idiots. While Ivan hesitates to buy a mall-based retailer with comically poor prospects, Scott joins the frenzy. Ivan says, only an idiot would do that. Scott says, only an idiot would do this! But Scott alone is acquainted with the Idiot Doctrine, so he does what the idiot would do. Ivan instead loses money on well-vetted companies, somehow always buying at the wrong moment.
The parable above is obviously fabricated. I’m just trying to explain a point here. Baron Rothschild said, “buy when there’s blood in the streets.” Not so if you live in the merciful land of idiots. Do as they do and you’ll get rich quick.
