You know you like it. And you know you sit glued to the screen when the Discovery Channel shows it. A herd of wildebeests needs to migrate from A to B, but wouldn't ya know it: Between A and B there's a river lousy with crocodiles.
Crossing the river is for the good of the herd, and most will make it. Most, but undoubtedly, not all. If ever there is a time in the life of the wildebeest when one questions the rationale of the herd, it’s probably when he or she is looking down at that muddy water brimming with fourteen-foot, one-ton killing machines. Staring at creatures whose lot, it seems, is to f up anything that comes between them and the goal of living another day.
But the individual voices ultimately go silent. Groupthink prevails, and the suicidal swim begins.
But c'mon. It wouldn’t be such great TV if one or two of the unlucky bastards didn’t get obliterated by the crocs. After all, these are "animals," not people. People are different. Right?
As a human, acting on asynchronous thinking is difficult, too. You’re simply not wired for it. You’re designed, by nature, to sync with the herd.
Human syncing manifests itself in all kinds of funny ways. Women who live together often have menstrual cycles at the same time. The more rotund your friends, the more likely you’ll hit the buffet twice -- or thrice. You benchmark your yard, clothing, and car against your neighbors'.
Herding is a survival mechanism with deep primal roots. I’ve written about it before. But given where humanity has strayed the last 100 years or so, herding seems less helpful. Less rational, too.
Bienvenidos a Miami
Often, the farther you get from events in the past, the more they come into focus. It’s like being able to climb up on a large hill and watch reruns of herds bumbling about on the plains below. It's a much better vantage point than when you're among the dust, hooves, and whims below.
Lately, I’ve been doing some reading about the housing bubble, specifically in Miami, a place where the housing herd ran off a not-so-small cliff.
I’ve copied in some snippets from a few things I’ve been reading. They were written at various points in the madness. I’ll explain the sources after.
In Miami, the speculative craze is promoted in part by developers and brokers who help buyers to resell quickly. Brokers in Miami work overtime to get their clients into V.I.P. sales events before developers start pitching buildings to the public.
Everybody was making money… prices were climbing to incredible heights, and those who came to scoff remained to speculate… Speculation was easy-and quick. No long delays while titles were being investigated and deeds recorded; such tiresome formalities were postponed.
Builders have been selling the vast majority of their homes to flippers. Flippers don’t care about quality. Rarely does a flipper order a competent home inspection. Rarely does a flipper even do a walk through. They are only concerned with flipping the contract as soon as they close.
Nine buyers out of ten bought their lots with only one idea, to resell, and hoped to pass along their [property] to other people at a neat profit before even the first payment fell due at the end of thirty days.
So now we have a market flooded with people that had no intention of living in the home. When, in the history of the world, have you seen millions of people buying multiple homes like a box of donuts? Like donuts, the value of these homes is dropping as they sit on the market.
Sources 1 and 3 refer to the most recent housing crash in Miami. Source 2 was published in 1931 following the first Miami real estate crash, an equally (if not greater) financial disaster occurring in the 1920s.
- Source 1: “Housing mania will end in tears” by Bill Fleckenstein in 2005
- Source 2: Only Yesterday: An Informal History of the 1920s by Frederick Lewis Allen in 1931
- Source 3: Ghost Market by Mike Morgan in 2006
Both crazes were fueled by the same crowd consensus: “this time is different” and “everyone else is doing it.” Jump! Jump in, dammit!
Does history repeat itself?
I don’t think so. If it does, then I don't understand time very well.
No, history doesn’t repeat itself; people repeat themselves. People reproduce and pass along not only their DNA but their experiences. They pass their wealth along, too.
Wealth and experiences are more fleeting than the influence of DNA and the herding behaviors learned through basic human interaction.
A old Chinese proverb states that “wealth does not pass three generations.” That’s about right if you think about it. Rarely is the means of acquiring wealth bequeathed with the pleasures wealth bestows.
So as people repeat themselves through history, we see that some lessons must be painfully relearned every three generations or so. In other words, by the third generation, we're back to the crocodile pit wondering what to do about it.
Out with the gnu, in with the old
(Sorry, couldn't resist.)
We live in a time when it’s easier than ever to get drunk on the latest a meme or craze. Worse, while the web makes it harder to get rid of the past in some regards, it also makes forgetting easier than ever by enticing us to place disproportionate importance on the recent past.
Before social networks, stock market tickers and headlines were the best measures of social memes. But now, we see real-time information everywhere, and the more of it we get, the less important the past seems. Simply put, we have less time for the past.
If you want to make smarter financial decisions and high-value moves in your life, time spent studying people will pay you back far more than time spent studying the technical details of investing and finance. Know where we've been first.
Like wildebeests, people really haven’t changed at all for thousands and thousands of years. The forecast is flat for the foreseeable future, too.
But unlike a wildebeest, you have more license to act on your questions. Simply questioning the herd and avoiding obliteration is probably worth more in the long run than any upside associated with the remote possibility that a crazy herd is correct this time.
I think the next 100 years will present enormous opportunity for those who stop and look the other way while the rest of the herd runs for the cliff or goes for a swim. It takes fortitude and confidence, but being a contrarian can have huge upside in the hyper-memetic world we’ve stepped into.
A few questions to get going
- How am I different than the herd?
- How can I use that to benefit myself and the herd?
This is not an entirely selfish pursuit. As James Surowiecki points out in The Wisdom of the Crowds, groups of independent thinkers actually make smarter decisions as a whole than groups heavily influenced by memes.
Have you ever thought about who's been making your decisions?
A few notes
- No wildebeests were harmed during the writing of this post. In fact, that little guy in the picture up there actually got away. Good for him and his individual success.
- Hat tip to Randy Murray for recommending Allen’s book. I thoroughly enjoyed it.
- After I drafted the guts of this post, I found a similar article comparing the 1920s to more recent times. See Bob Hoye’s article “The Consequence of Real Estate Bubbles” for more striking comparisons between the recent and not-so-recent financial past.