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Better Right than Rich?



February 08, 2007 – Comments (4)



Sometimes I long for the academic world, if only for the access to all those bright, energetic young slaves ... er, research assistants. If I had a pile of them today, I'd set them to work helping me with a pet theory I've got, which is that many "investors" out there prefer feeling smart to making money.

What I'm saying is this: They'd rather be right than rich.

Don't agree? Then how do we explain the amazing cults that follow certain stocks out there, despite the fact that the companies do nothing but burn cash? The zealots of a certain Internet closeout retailer come to mind, but they're just the tip of the iceberg. How about the Wi-max blimp fans? The nano bag-holders at Altair Nanotech (Nasdaq: ALTI)? The easily excited advocates of Capstone Turbine (Nasdaq: CPST), FuelCell Energy (Nasdaq: FCEL), or ever-adaptable, "we're into whatever the hot alt-fuel tech is this month" Hawaiian hottie Hoku Scientific (Nasdaq: HOKU)?

They make the "the future is here today, and I'm getting in on it before the rest of you cavemen, so nyah nyah" crowds who fawn over Intuitive Surgical (Nasdaq: ISRG) and iRobot (Nasdaq: IRBT) look positively rational by comparison.

Psych majors looking for a project idea, give it a thought (or let me know if there's already research out there that covers this). Why do people routinely risk their dough on the future they think they see, knowing full well that, on the whole, we are all terrible about predicting the future?

Is it because we want to be rich? Or is it because we get a kick out of thinking we're smarter than the average bear?

The answers would get to the core of investing vs. speculating.

Comments? Bring them here.

At the time of publication, Seth Jayson had no positions in any company mentioned here. See his latest blog commentary here. Intuitive Surgical and iRobot are Motley Fool Rule Breakers recommendations. View Seth's stock holdings and Fool profile here. Fool rules are here.

4 Comments – Post Your Own

#1) On February 08, 2007 at 8:25 PM, Slugabug (< 20) wrote:

Hey man, sorry you missed out on all those stocks. Better luck next time.

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#2) On February 08, 2007 at 8:38 PM, Ganndalf (68.87) wrote:

Good post Seth,

I'll go out on a limb here, and assume that you have gotten more than your fair share of "hate mail", for lack of a better term. I think that many of the people who are devoted to their stocks don't always appreciate your criticism.

You know, you can lead a horse to water, but you can't make him reasonable. The whole psychology of investing is very interesting. I think you've posed some complex questions with some correspondingly complex answers.

Sometimes people take it personally when you criticize their stock. If you argue with them (against their stock), they'll feel like they have to win the argument or at least defend themselves and their stock.. And some people are just not capable or unwilling to look at a company with the depth of analysis that you do and in a perfectly objective manner.

People sometimes develop a fan mentality as if were the Colts vs. the Bears. There's bound to be a conflict because they're in a whole different world, it seems, from the cold, disinterested, nonegotistical, analytical investor.

I do have a confession to make, though,... I do, in truth, hold Intuitive Surgical, and iRobot, but I greatly appreciate and welcome all your criticism. We all benefit, I think, from an alternative perspective and analysis.

The crux of the problem, perhaps, for some is in becoming "cognitively rigid" I remember a term from Ed. Psych. class that is similar known as "cognitive dissonance". I don't remember the definition exactly but it has to do with the phenomenon that sometimes people just can't take the data in or incorporate a line of reasoning into their own thinking because it stands in conflict somehow to their own experiences and mode of thinking.

Just some thoughts,

Keep up the good work, but you might want to consider procuring a little protection from your ole' buddies at Ceradyne. I don't think the fans and perhaps a few others are overly sympathetic to your brutally rational ways. At least see if you can't get one of those Tasers. You never know.


a.k.a. Ganndalf @ caps

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#3) On February 08, 2007 at 8:58 PM, Ganndalf (68.87) wrote:

Cognitive dissonance is a psychological phenomenon which refers to the discomfort felt at a discrepancy between what you already know or believe, and new information or interpretation. It therefore occurs when there is a need to accommodate new ideas, and it may be necessary for it to develop so that we become "open" to them. Neighbour (1992) makes the generation of appropriate dissonance into a major feature of tutorial (and other) teaching: he shows how to drive this kind of intellectual wedge between learners' current beliefs and "reality".

Beyond this benign if uncomfortable aspect, however, dissonance can go "over the top", leading to two interesting side-effects for learning:

if someone is called upon to learn something which contradicts what they already think they know — particularly if they are committed to that prior knowledge — they are likely to resist the new learning.

Even Carl Rogers recognised this. Accommodation is more difficult than Assimilation, in Piaget's terms. and counter-intuitively, perhaps—if learning something has been difficult, uncomfortable, or even humiliating enough, people are less likely to concede that the content of what has been learned is useless, pointless or valueless. To do so would be to admit that one has been "had", or "conned".


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#4) On February 09, 2007 at 8:46 AM, TMFBent (99.83) wrote:

Now those are some great comments. thanks folks.

Here's the usual one "Hey man, sorry you missed out on all those stocks. Better luck next time."

Personally, I'm pretty glad I "missed out" on Hoku, FCEL, Globetel, IRBT and the rest. ISRG, I nearly bought, but never liked the price. I've done better with such boring and unloved stocks as GES.

check the chart: http://finan...ce=undefined

And my MSFT calles have pounded the tar out of ISRG over the last half year as well.

That, to me, is the essence of the difference between being in love with your dreams, and looking at the numbers.

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