When I was a boy, cartoonist Charles Schulz introduced a new comic strip called Peanuts. Its central premise was children having the same problems as adults, and it was an instant hit.
There were several recurring themes and, each autumn, the cartoonist would have his main character, Charlie Brown, attempt to fly a kite. At first all would go well, and Charlie Brown would build up his hopes, only to have them dashed when a tree would snag his kite and eat it.
This theme was endlessly enjoyable, as it reflected a syndrome familiar to all adults. The cartoonist was careful to ensure that he could do new variations on the theme every autumn, due to the fact that Charlie Brown never succeeded. At the end of the strip, the tree always ate his kite.
And so it often goes in the adult world. Albert Einstein famously said, “The definition of insanity is doing the same thing over and over and expecting different results.”
And, yet, in every era, we can see this strange behaviour play itself out, time and again.
People go to casinos, imagining that, somehow, the casino will lose and they will win. They buy lottery tickets with odds of hundreds of thousands to one against them.
And, amazingly, they invest in the stock market, not just badly, but in the very same pattern that has historically proven to virtually guarantee loss. More amazingly, this is not the behaviour of the occasional loser; it’s the approach adopted by the great majority of investors and is one that they staunchly defend as “wise and informed investing,” right until the crash that cleans them out.
So what, then, is this pattern? Well, generally, a potential investor contacts his broker and asks him if there’s anything he can recommend. The broker virtually…