Group Think and Disastrous Leaks

British Petroleum’s disastrous oil leak in the Gulf is giving us a sinister example of how futile American group-think can be. George Orwell coined the phrase ‘group think’ in his classic book 1984. It was his sarcastic word for those times when we all think the same way, and we all get it wrong.

This horrible oil-rig accident is very serious: it’s a huge eco-disaster and it’s running out of control. There is no controversy about that. There is unanimity about getting it under control and stopping further damage.

What’s interesting is the American people’s group-think reaction. Somehow the people’s focus is turning toward President Obama; somehow the people seem to blame him. His popularity is dropping on the opinion poles for his failure to act. Or is it his failure to react? Or is it his failure to . . . to . . . ― “Well, we’re not quite sure what he should do, but he sure isn’t doing a very good job!” Isn’t it interesting how they seem to be blaming Mr. Obama for the oil-rig disaster?

And isn’t it interesting how President Obama feels the pressure of public group-think and has engaged BP’s management publicly, demanding that they do what they are already trying to do: namely, stop the disaster. And now, before the disaster is even under control, they’re talking about BP’s liability for the clean-up.

I am fascinated by the American public’s focus on the politicians. Surely they don’t really believe the President or the Senators and Congressmen can help. Or maybe they do. When Mr. Obama took control of the White House, the world was in the middle of a banking crisis. And by simply following the advice of his experts, he participated in saving the world from a banking calamity. Then, in the role of White Knight, he went on to chastise those banking leaders who caused the problem. And then he took several deep bows for his cool thinking under fire. He was so popular he was given the Nobel Peace Prize before he actually did anything.

Now the Gulf eco-disaster has placed his White Knight image in jeopardy: the president who can fix anything can’t fix this one. Nobody can fix it. Just as he took the credit for fixing the banking crisis, he is taking the blame for not fixing the oil-leak crisis. Group-think, American style: the president gets the credit for everything that goes well and gets blamed for everything that goes wrong. What interesting people our American cousins are. They love their heroes. And they love to despise their heroes when they disappoint.

Perhaps we Canadians can learn a lesson from them. In my book on investing Beyond the Bull, I put forth the idea of learning from others. Can we become better investors by learning from Americans’ impatience with their former heroes?

Remember the hero of the investment world in the 1990s? (Warren Buffet was only the icon.) The hero was your personal financial planner who became a financial White Knight leading us all on a crusade for personal wealth. All we had to do was buy the mutual funds he championed and hold them steadfastly until the End of Time. In financial Camelot, we would all retire rich and live happily ever after. I’m sure several Certified Wizards of Retirement Planning (CWRP) felt they should be nominated for a Nobel Prize.

But now it’s our stock market mutual fund investments that have blown up and are leaking our retirement savings. Have you noticed how equity mutual funds no longer advertise their ten-year returns? The stock market has become a retirement disaster for yesterday’s steadfast financial planners. Yesterday’s investment heroes have disappointed.

But we Canadians are different from Americans. They get disillusioned fast! We are slow to blame. They expect problems to be solved now! We will wait patiently and hope for things to get better. Americans criticize their president or fire their financial planners. We politely look the other way.

But my analogy doesn’t really work, does it? That oil well really is spewing black gunk into the Gulf’s rich waters and no White Knight has yet stopped it. But to stop the financial leak in our retirement plans, all we have to do is sell our stock market investments. It’s so easy. But financial group-think is hard to shake off when you’re part of the group. Maybe that’s why we Canadians are so patient with our investment disasters: we have no one to blame but ourselves.

Our advice? Invest in stock market mutual funds when the stock market is moving up. And when it’s not moving up, invest in something that is.

To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com
(Bullmanship code SS32)

Contact Ken directly at ken@castlemoore.com.

Focus Too Narrow

The financial press has missed the boat. In its coverage of May’s extreme volatility in the stock market, they have focused on European debt problems. Reporters worry that the economic problems of Iceland and Greece will spread to Italy, Portugal and Spain. They blame the stock market’s wild ride on economic problems. But they may have overlooked the real story.

The North Koreans did not miss the boat. Apparently, earlier this year, a North Korean submarine fired a torpedo at a South Korean naval vessel and sunk it, killing 45 sailors. And when the United Nations called them on it this week, the North Korean dictator threatened all out war on South Korea. North Korea believes that China is her ally. South Korea believes that modern G8 nations are her ally. Did North Korea’s navy commit this act to intentionally start a war? Have they been preparing for war for years? Was the sinking of the South Korean vessel supposed to trigger war? Didn’t George Bush include North Korea in his Access of Evil speech when he was preparing America’s response to the 9 – 11 terrorist act? The financial press has missed the boat on this long-storming sea of trouble.

On May 6, 2010 the Dow Jones Industrials dropped 900 points in the twinkling of an eye. Is it possible that Fat Finger Day happened because of a leak in naval news? Did someone find out the results of the UN study before it was released and those fat fingers pushed panic button, selling stocks in anticipation of renewed conflict in Korea?

Or maybe the real story is a cold war – an icy stand off between China and the west. That would certainly end the rosy glow of China – American trade relations. That would certainly change the investment world.

The heads of state of various countries will continue to posture and position themselves economically and militarily. And financial press will continue to report whatever they feel is important. What will you do?

Don’t you miss the boat. Remember what happened to the stock market in late 2008 and early 2009? It dropped in half. Remember what happened to your RRSP? Were you one of the millions of investors afraid to open their 2008 year end investment account statements? The stories about European debt indicate an increased level of risk in the economic world. The threat of war, cold or hot, also indicates an increase in the level of risk in the economic world. It’s time for ordinary investors to DECREASE the risk in their own personal economic worlds. It’s time to sell your risky securities and buy safer ones. Don’t allow your portfolio to be torpedoed again.