Quote of the Day: Markets DON’T Do What Most People Expect Them to Do

Markets DON’T do what most people expect them to do. Reality doesn’t correspond to what the crowd thinks or what it wants.

When large numbers of people expect a particular outcome – say, a bear market – it won’t happen. A bear market is born of excessive optimism (just as a bull market is born of excessive pessimism). If too many people expect a bear market around the corner, they won’t bid up stock prices to the point where they’re likely to crash.

That means only contrary and alternative ideas pay. The mainstream ideas, the conventional wisdom, the soothing nonsense that “everybody knows” and “everybody wants to hear” is a losing proposition.

Because it is already priced in. Everybody already believes it. There isn’t much upside left.

You get a big crash only when investors are optimistic enough to bid up prices to the point where there is no chance of decent returns. And you get a big bull market only when they are so gloomy that they have sold off their stocks to record lows.

The big profits are made from big surprises. The opinion that seems too far out, the analysis that comes to the opposite conclusion of most others – those are the investment ideas that make money!

This excerpt is from Agora Publishing head Bill Bonner at his website Bonner & Partners