Scott Leckie en Directors and Executives, Entrepreneurs, Finance / Banking Board Member • New Millennium Iron 14/11/2016 · 1 min de lectura · +200

The Consensus is Wrong - Again!

I didn’t prefer either candidate for US president at the time finding the prospect of a Trump presidency a scary proposition, and finding Hilary completely devoid of any charisma.The Consensus is Wrong - Again!

But what I absolutely loved about the election was the example of the consensus being wrong - yet again. In fact the entire polling industry got it absolutely 100% wrong, the odds makers got it wrong, and most of the liberal leaning press also got it wrong.

This is a perfect example showing that consensus thinking is alive and well in humankind. 

It is also the exact same mechanism that is alive in the financial markets, and that allows the contrarian actor to take an out of favor position that as a result of its out of favor status is cheap and washed out with little downside risk remaining, and tremendous potential upside.

Look at the related example of Carl Icahn who is reported to have left the Trump victory party when he discovered that the S&P futures were down 700 points the night of the election, and who famously put $1 billion to work buying the S&P, and wishing he could have bought more. By the next morning, when the S&P was actually up - he had made his profit.

The consensus is not always wrong or not always immediately wrong because consensus thinking travels a great distance on its own momentum. Patience is required.

However, when the consensus is at maximum strength, there is great opportunity for the contrarian thinker to take an opposing view at low risk, and with the potential for maximum reward.

This behavioral phenomenon of consensus or group thinking and the ability of some to take a contrary stance is the basis for the success of value investing.