Stock market investors should look for opportunities arising from breakdowns in cognitive diversity.
IN 1932, Bernard Baruch, a financier who made his fortune on Wall Street, wrote the foreword to a reprint of the 1852 edition of Charles Mackay’s classic book, Extraordinary Popular Delusions and the Madness of Crowds.
He cited a quote by the German playwright Friedrich Schiller: “Anyone taken as an individual, is tolerably sensible and reasonable – as a member of a crowd, he at once becomes a blockhead.”
Any theory of the stock market must explain why prices are usually sensible but periodically go bonkers.