In quantum mechanics, there is a theory that the mere observation of a phenomenon inevitably changes that phenomenon. It’s called the Observer effect. I think it not only exists at the atomic level, but also plays out in all aspects of our world.
Earlier today, I tweeted an observation on Twitter:
If enough people see or hear about this tweet, it will be wrong.
You see, once people become aware of something, they might do something to stop it from happening. Or we might become complacent. Whatever it is, becoming aware of something changes the outcomes in the future.
We are aware of Global Warming, so we will likely avoid the worst case scenarios. Everyone knew for a fact that the Titanic was unsinkable. As long as everyone believes a stock market crash is coming, the markets will keep going up.
In the 1950’s in America, people sounded the alarm that Communist ideologies might overtake the world and countries might fall to Communism like a line of dominoes. Obviously, that didn’t happen. But perhaps if nobody sounded the alarm, the world political landscape might be much different today.
Another similar phenomenon occurs with trends. A trend always continues until everyone notices the trend. Then the trend breaks.
Say a baseball player hits five home runs in the first five games of the season. Now everyone is expecting him to hit a home run on his sixth game. And of course he won’t.
When I was growing up in the 1980’s, I heard that a lot of scientists were predicting that the world oil supply would run out by 2030 if the trends continued. Well, it’s 2020, and I don’t hear about oil wells running dry and gas prices skyrocketing (in fact, we had an oversupply of oil earlier this year).
If I still have your attention at this point, then you’re probably believing some of what I’m saying. So how can you use this theory to your benefit? Here’s some ideas.
- Take the majority opinion with a grain of salt. When everyone believes something will happen, think about what you might do if it doesn’t happen so you’ll be a step ahead of the game.
- Embrace contrarian investing. The stock market moves with the crowd. If everyone believes a stock will go up, then the stock goes up immediately to the point of being overpriced. Once everyone realizes how overpriced it has become, they’ll sell and the stock price will plummet. (I’m imagining a crowd of people running back and forth on a boat trying to keep it from capsizing) So buy stocks that everyone hates, and sell the ones that are overly loved.
- Always root for the underdog (sports are more fun that way anyways).
- March to the beat of a different drummer.
- Never board any ship advertised as “unsinkable”
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