June 21, 2010
Definition of Withdumb: A quality you possess if you hold a popular and unfounded point of view.
Withdumb is different from herd instinct. A person who possesses withdumb could achieve the condition with no help whatsoever from the group . For example, if you were the only person in Mongolia who believed in astrology, you would have withdumb, but it wouldn’t be because your herd influenced you.
It’s easier to cling to an irrational opinion if you know that somewhere in the world there are lots of people who think the same way, especially if those other people seem smart or authoritative.
When I was a kid, my own withdumb included the idea that eating before swimming meant certain death. I assumed that someone had actually done research on that topic. I recall wondered why I had never heard of anyone dying from a sandwich-related swimming incident. But when you are young, you assume there are plenty of things happening that you don’t know about. The only thing I knew for sure is that lots of people believed that eating and swimming was a dangerous combination.
As an adult, I’m a bit more tuned to recognize withdumb, especially in myself. I see withdumb most often in the field of investing. Most investment choices are based on nothing more than the knowledge that other people do similar things. Lately I have started to wonder if the science of investing is any better than the science of astrology or the science of not eating a sandwich before swimming. I have a degree in economics and an MBA from a top university and I haven’t seen any convincing evidence that investing is more than a collection of elaborate scams. Am I exaggerating? No.
Clearly there are people who have special knowledge and can exploit inefficiencies in the market to make money. And clearly the nature of randomness guarantees that some people will make a killing with their investments by pure chance while telling the gullible world they are geniuses. But if you have average knowledge and average luck, is investing even a real thing? I haven’t seen any evidence to support that notion. I’ve been an active investor for decades. During that time I have seen no correlation between my investment knowledge (aka my withdumb) and my outcomes. Nor have I seen any correlation between other people’s knowledge and their investment outcomes.
I’m toying with a hypothesis that all of the major moves in investment markets are manipulations by hackers or insiders. It sounds nutty, but Enron was very real, for example, and that company was essentially a criminal enterprise that profited by manipulating energy markets. According to a recent segment on 60 Minutes, hackers have penetrated a shocking number of highly protected defense, banking, and energy systems. If that reporting is accurate, it is naïve to assume that the major investment market computer systems are not already compromised. Someday we might look back at this era and see that what looked like successful investing by individuals was nothing more than correctly guessing the direction that criminals would manipulate the market.
Oh, I’m not done yet. I’ll even go so far as to say that the BP oil leak looks suspicious to me. I think we all agree that the most likely cause of the incident is shoddy (cheap) engineering. But the second best explanation is sabotage with a profit motive. My withdumb tells me the oil spill was just an accident. But my experience and common sense tell me I don’t live in a world where the alternative can be ruled out.