Teresa & Pete,

A week or relief you have just experienced.
I was high (but not on drugs), I am trying another therapy and be a little more human (for you at least).

A simple question inferred from this podcast.
Do you suggest that if your account is above USD 250.000.- you should be rebalancing but a different set of tickers?

Maybe more with the same regularity?

Thanks,

Daniel

Normally I’m not compelled to preface statements containing my opinions with a disclaimer in that my opinions rarely stretch beyond my own knowledge base as remote and insignificant as that might be. Isn’t it fun to reach beyond your comfort zone? So the only reason to offer a caveat before proceeding is in hopes of not giving credence to those who would toss this in with the mass of ignorant opinion out there within a few Google clicks.

I am a fairly competent student of history. I do not have extensive knowledge in the areas of psychology or sociology, but I have read the definitive book on the ‘madness of crowds’ and many other books dealing with a group mindset in terms of market behavior.

For me the most compelling time in the lifecycle of typical crowd madness comes just before the crowd loses all their cohesive energy and follows Newton’s third law returning to a state of entropy. That energy which had bound them all has dissipated to the point where each individual conscience regains control. So where did that energy go? Did all of it fade into the universe or did some become reabsorbed into individuals allowing then to rethink their initial positions? Could such an experience be so profound as to actually alter some of the individual’s belief systems?

The most likely answer is also the reason I never could conjure enough energy of my own to seriously study clinical psychology and/or sociology. There is no one correct answer. Each extreme reaction is readily observable as well as all variations in between. To the one extreme, some will continue the mob mentality even after there is no mob left. To the other, some will gain perspective to the point where they are able to alter their belief system and come to take the opposite view from the one first driving them to madness. Some if not most will just continue to act the exact same way they acted before not even realizing the simply joined the mob just for something to do.

The section of former mob participants that intrigues me to the point of composing yet another verbose diatribe is that group ignorant that their time has ended. To follow up on the previous entry’s example, how many were left dutifully screaming out of their window after Howard Beale was literally and figuratively over? Why are they still screaming ­ perrhaps even to this day? I want to know!

Perhaps a context based in history and not Hollywood is the answer. Every societal shift moves humanity forward a bit leaving the ignorant in the wake. This group has been labeled as the “Flat Earth Society” so obviously this phenomenon has been in place a while. Currently the world is in the midst of a movement where each individual is attempting to come to grips with their own carbon footprint. I don’t know whether this movement has entered the madness stage yet, but like all movements and like all market tops, no one will know it’s over until it is too late. We’ve just come out of the internet age movement and before that came the movement advocating that free market practices dictate policy rather than government officials (nicknamed the Reagan revolution).

Right now the percentage of people effectively managing their carbon footprint is so low as to categorize them on the fringe and not at the core of the current movement. Sure, there are still lots of people who never use the internet and claim they never will need it. Still lots of people deny the power of corporate America over their lives even as they spend all their time immersed in its workings.

An obvious cause (or is it symptom) of this behavior is the anger resulting from constant denial of the emerging truth resulting from the paradigm shift. When society moves on and leaves some behind, anger is sure to follow. My absolute favorite example of such unwarranted angle was a news story during the 1991 World Series when a Twins fan here in Minnesota got so angry at a perceived bad call by the umpire that he had a heart attack and died before the end of the game ­ of course the Twins eventually went onn to win that game and the World Series as well!

Therein lies the madness and the source of my fascination. Who are these people who literally and/or figuratively are still standing on the street corners ranting about how we still won the Vietnam War, the civil rights movement was a mistake, and women should have never been given the right to vote? How far back does the crazy go? Could they eventually lead a wild discourse back in time to a philosophy of bonking women in the head with a club and dragging them by their hair back into the cave?

I wonder if professionals in the field of human behavior would agree with my assessment that the rationale for such willful obstinate behavior is based mainly on self preservation. Whereas self preservation is a primal force driven by millions of years (some would say thousands!) of evolution, greater societal movements can and will be ignored by some if ignorance does not result in any negative consequences. I cite as evidence the fact that members of the Flat Earth Society proudly decry the ‘not personally affected’ mantra as if such irresponsibility constitutes a badge of honor. “My family and I are doing fine. We have no need of any technology or mechanical innovation since the dawn of electricity. We’ve never been personally attacked by terrorists, don’t care about the cost of gasoline, healthcare, or any other material goods, don’t worry about our carbon footprint, aren’t affected by any facet of the economy, and are oblivious to
any political or religious viewpoints. By the way, did I mention we live on the moon?”

I just saw a fascinating interview with Senator Jim Webb on MSNBC (Google it if interested) where he discusses at length the elephant in the room during the recent east coast Democratic primaries. He noted that the frontrunner Sen. Obama was losing votes in the Appalachian district not to simple demographics and ugly stereotypes but to simple ideology. According to Senator Webb, the Appalachian people don’t like Sen. Obama mainly because he represents “special interest groups” and not them. I say only those left behind see the crowd moving forward without them as a “special interest group”. The empirical evidence that Sen. Obama represents the next societal movement can be seen in glaring similarities between those now lobbing constant criticism and that same rhetoric thrown at the major societal movements in the past.

This brings me to yet another drawn out conclusion. One of the great lessons in studying a historical perspective of the markets is that it is indeed never different this time. What do we make of people who still claim Google will trade at $1000 per share and that $200 dollar barrel of oil is an absolute certainty? Does it make any sense to spend any energy trying to convert them or try to pull them back from their fringe? No, the best way to cope is to accept the ever dynamic market picture and deal with the new reality as best as you can. Such is the case with those still hoarsely chanting the Howard Beale mantra out of their windows. The energy spend in acclimating yourself to whatever new societal rules most affect you is always an infinitely better investment than energy spent in shouting them down.