百年神作！《乌合之众：大众心理学研究》

Why can't you make money even if you clearly see the market situation?

Why take huge risks when you know the dangers?

Perhaps the answer can be found in the masterpiece "The Crowd: A Study of the Popular Mind" written 120 years ago.

The author, Gustave Le Bon, pointed out:

When people are in a group, their intelligence significantly decreases. In order to gain acceptance, individuals are willing to abandon their own judgment and exchange intelligence for a sense of security and belonging...

Once an individual becomes part of a group, their actions no longer carry personal responsibility, and everyone will reveal their unrestrained side.

What the crowd pursues and believes is never the truth or rationality, but blind obedience, cruelty, paranoia, and fanaticism, only understanding simple and extreme emotions...

The masses have never truly sought the truth. Faced with evidence that goes against their preferences, they will turn a deaf ear... Anything that can provide them with illusions can easily become their master; anything that shatters their illusions will become their sacrifice...

Quantity (the crowd) is considered as justice.

The following is a compilation of reading notes from Changxin Fund.

Although this book was written a century ago, the traits of fanaticism, gullibility, and conformity in human nature have remained constant over the past century. Therefore, rereading this book a century later holds profound significance for investments, our lives, and constructing a correct mindset.

Exploring the Causes of Group Psychology

We cannot categorically say that groups are irrational, nor can we say that they are not influenced by rational thinking. However, from a logical perspective, their arguments and the arguments that influence them can be considered rational through analogy.

Let's first discuss how group psychology is formed. Individuals in human society quickly identify each other through shared characteristics, such as being Chinese, belonging to the Han ethnic group, or working in the financial industry. Each individual forms a group, and the emotions and thoughts of the group focus on the same thing, forming a unified spirit, which transforms into group psychology. In group psychology, the average intelligence of the group is inferior to that of individuals in solitude, and the differences in individual intelligence are diminished, fostering mediocrity rather than creativity.

While times change, the public's pursuit of a sense of security through group dynamics remains unchanged. Groups can only accept simple concepts, are extremely resistant to change, and tend to veer towards extremism.

The book provides a famous example: in January 1524, a prophecy spread that the Thames River would flood London, leading to a mass exodus from the city. Similar behaviors have been observed in modern times and even today, amplified rapidly in the current internet age. For instance, you may often see an article expressing a certain viewpoint, and once a few people start sharing it, it quickly goes viral. Eventually, even if you haven't fully understood the article's meaning or read it completely, you might unconsciously share it to maintain the sense of security within your social circle.

Staring into the Abyss of Group Psychology

The thoughts of a group are easily influenced by fleeting ideas, but these ideas are difficult to sustain in the group's thinking for a long time. However, once these ideas become beliefs, uprooting them becomes extremely challenging.

Therefore, after reading the book "The Crowd: A Study of the Popular Mind," one will discover that human madness revolves around three deepest human desires:

The first is the fear of death deep within the human heart;

The second is the fantasy of getting rich overnight;

The third is the desire to peek into the future.

These three desires are projected into real life and are ubiquitous. For example, the current escalating fantasy of getting rich overnight has given rise to phenomena like pyramid schemes, P2P lending, and so-called risk-free high-yield financial products.

As investors, why do we build financial models? In fact, this is also a desire to peek into the future. The madness born from these desires often manifests as a bubble in certain asset prices, such as the tulip mania and the South Sea Bubble described in the book. These bubbles eventually lead to collapse, caused by excessive speculative demand.

Now, in the internet age, information spreads more rapidly and powerfully through networks than in the previous century. Information growth in the later stages is exponential, leading to an exponentially growing crowd participating in bubbles, hastening the peak. Once trading stops, the crash happens in an instant. Warren Buffett once said that in the long term, stock prices are a weighing machine, meaning that fundamentals drive stock price changes, but in the short term, it is a voting machine, with prices being driven by public sentiment.

Independent Thinking: Avoiding the "Crowd Mentality"

Leaders, especially, should be aware that words, phrases, and images have a captivating influence. They should master a special rhetoric, including strong affirmations, evidence-free assertions, and impressive imagery, accompanied by very concise arguments.

As an asset manager, I believe there are two important aspects to consider regarding stock market bubbles.

Firstly, as investors, we must maintain objectivity and rationality to differentiate between emotions and facts, recognizing the objective existence of bubbles. Because stock prices reflect collective cognition, an excellent fund manager should think independently of the crowd.

Secondly, once we acknowledge the existence of a bubble, we can choose to completely avoid it or participate to some extent. With a clear and objective understanding, we can exit sensibly, which is known as making money from bubbles. Fund managers are also human, and despite being rational, cognitive biases can lead to self-righteousness. Therefore, we must avoid becoming thoughtless followers, constantly reflecting on and correcting ourselves.

To break free from the crowd mentality, the most crucial point is to start from independent thinking, exploring the essence of things from one's own perspective, and not letting the opinions of the group influence one's own views. For example, when buying a fund, it should be based on one's own understanding and alignment with the investment philosophy and framework of the fund, rather than simply following others because they are buying it.

Staying Clear-headed in a Noisy Market

The hot sectors and tracks that the market is focusing on must have their own logic. It is a good method to carefully study the investment opportunities in these sectors, explore the essence of events, and participate appropriately.

However, in this investment market, there are many intelligent investors participating, and our intelligence may not surpass theirs in continuously discovering exclusive potential tracks. Therefore, when the market becomes overheated, it is crucial to remind ourselves to seriously consider the actual investment value of a particular style and sector. Stay vigilant and be aware of the emergence of bubbles. At this time, wise individuals tend to lean towards sectors that are not in the spotlight, to explore investment opportunities in those areas.

I recommend the book "The Crowd: A Study of the Popular Mind," which describes the herd mentality of blind fanaticism in groups. Whether in daily life or in investments, as individuals, we must always be vigilant. This blind fanaticism can better teach us how to become an excellent investor.