Why most investors are mostly wrong most of the time?

• Very well read bright people who pay close attention to the market often make pretty bad investing decisions. There is usually one simple reason for this: They inadvertently get sucked into the consensus view.

• Group think can happen no matter how careful and studied your methods are. Many folks see investing as a discipline, art or science, which sounds good, but their methods morph into the conventional wisdom- usually dangerous in investing. All follow the rules dictating the same result.

• Many doctors, lawyers and engineers are prone to this. Not because there is anything wrong with them as people. It isn’t their fault! But their professional training leads them there. In their professional lives, they used rule-based methodology, and there it works but in market it doesn’t. They expect market to be linear and rational, just like the systems they build and work with daily.

• Rule based investors usually use similar logic and reach similar conclusions. They use the same patterns, the same if then assumptions. They end up expecting similar things, and it morphs into the consensus view point. It usually appears very logical! But markets often defy logic, as we’ll soon see. Theory and principles can be useful if you layer on the independent thought. But many turn theory to dogma, textbooks to rule books. We think that whatever the literature says is good or bad for stocks must be true, always and everywhere. E.g Low P/E stocks are cheap.

• Markets price in the consensus pretty quickly and do something else. That “Something else” is what the true contrarian wants to figure out. Some investors use old saws and rules of thumb as a guide – the “Playbook”. Here, too, the approach might seem fine. The playbook is supposedly full of time –tested wisdom! If it didn’t work, it wouldn’t be in the playbook! But more you base decisions on the maxims, proverbs, and things everyone just knows, the less likely you are to think independently- and less likely to have the true contrarian views.

• The approaches based on widely known information and common interpretations of that information, no matter how intuitive and logical, they’re what “everyone” does. The true contrarian moves beyond consensus views and conventional wisdom. Life is way more exciting there, in the wide open air.

“If most believe something will happen in markets, the contrarian simply believes something else will. Note I didn’t say the opposite happens. Just something different”