For a very, very long time, staying with the group was almost always the safe bet. Free-thinking contrarians who questioned whether there really was a lion generally didn’t last long enough to pass on their genes. (And if they weren’t eaten, well, they were the kinds of personalities that probably struggled to find a mate anyway.)
So going with the flow is pretty much how we’re wired. Seth Klarman put it well: “There is comfort in consensus; those in the majority gain confidence from their very number.”
But as all the investing greats have observed, what is comfortable is rarely profitable.
When an idea feels obvious, safe, and universally praised, the good news is mostly already in the price. It might be the right view, but backing it doesn’t offer much of a reward.
And being different for its own sake is just as risky. In fact, it’s worse. The world is round, the sky is blue, and water flows downhill. Having a variant perception on something that is almost certainly true is just dumb.
Most of the time, the consensus is on the money.
You need to have a view that, as Howard Marks puts it, is both different from the consensus and right.
A clear and accurate read on something genuinely non-consensus is a gift, provided you can find it, defy your herding instincts, and hold steady in the face of ridicule and doubt.
That is one thing over a few days or weeks, but quite another over a series of years. Maybe the market’s volatility won’t shake you out, but it can easily wait you out.
It’s not easy. But then again, that’s why the potential gains are so big.
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