âItâs a malignant disease.. spreading through the whole country..â
âOfficial narratives have proven far more contagious (and lethal) this year than any virus, and the supporting lies keep getting bigger. Upon arrival of an unknown health risk in late February, the authorities promoted a top-down, one-size-fits-all solution of universal isolation. The centralization of knowledge was assumed and market solutions not even considered. As ânon-essentialâ businesses were shut down, corporate debt markets locked up and stocks lost one-third of their value. To deal with the economic mess, only top-down government solutions saw the light of day, this time at a price tag of over $5 trillion in borrowed and printed money (with plenty more on the way).
âWith the death of George Floyd on May 25, caught on video for the world to see, the narrative shifted overnight from gray lives matter and âshelter in placeâ to âblack lives matterâ and protest in public. Never mind that Floyd had enough fentanyl in his body to kill him and that the officers on the scene may have acted to save him. The mainstream media went into overdrive, promoting the well-rehearsed narrative of systemic racism. Keep in mind, 30% of the top 30 highest-paying celebrity endorsements last year went to blacks (even though they account for 13% of the population). Consumers generally donât buy products endorsed by people they hate.
âThe third act in this play, reopening the economy, was met with fearmongering over spiking cases, despite evidence that this was due largely to increased testing and inflated by false positives. (Apparently crowds looting and setting cars on fire were not a factor.) Meanwhile, the weekly death rate has dropped 50% from its peak in April. (Over the past week, there were 8,000 official deaths vs. 274,000 recoveries.)
âAll three deceptions are wrapped in the biggest of lies, that government has a magic printing press that will suspend the laws of economics and make it all go away.â
Kevin Duffy, The Coffee Can Portfolio, 11th August 2020.
âDr. Kauffman: Less than a month ago, Santa Mira was like any other town. People with nothing but problems. Then, out of the sky came a solution. Seeds drifting through space for years took root in a farmerâs field. From the seeds came pods which had the power to reproduce themselves in the exact likeness of any form of life.
âMiles: So thatâs how it beganâŠout of the sky.
âDr. Kauffman: Your new bodies are growing in there. Theyâre taking you over cell for cell, atom for atom. There is no pain. Suddenly, while youâre asleep, theyâll absorb your minds, your memories and youâre reborn into an untroubled world.
âMiles: Where everyoneâs the same?
âDr. Kauffman: Exactly.
âMiles: What a world. Weâre not the last humans left. Theyâll destroy you!
âDr. Kauffman: Tomorrow you wonât want them to. Tomorrow youâll be one of us.
âMiles: I love Becky. Tomorrow will I feel the same ?
âDr. Kauffman: [shakes his head] Thereâs no need for love.
âMiles: No emotion? Then you have no feelings, only the instinct to survive. You canât love or be loved! Am I right?
âDr. Kauffman: You say it as if it were terrible. Believe me, it isnât. Youâve been in love before. It didnât last. It never does. Love. Desire. Ambition. Faith. Without them, life is so simple, believe me.
âMiles: I donât want any part of it.
âDr. Kauffman: Youâre forgetting something, Miles.
âMiles: Whatâs that ?
âDr. Kauffman: You have no choice.â
Dialogue from Invasion of the Body Snatchers, 1956.
There have been four film adaptations to date of Jack Finneyâs 1955 sci-fi classic novel and serial The Body Snatchers: that of 1956 (our favourite), starring Kevin McCarthy; that of 1978, with a particularly creepy Leonard Nimoy; Abel Ferraraâs 1993 version, set on a US military base; and 2007âs The Invasion, with Nicole Kidman and Daniel Craig. (There have been five if you include 1998âs The Faculty, which is essentially the original, just relocated into a US high school.)
For our money, though, Don Siegelâs 1950s version is by far the best, despite or perhaps even because of its B-movie origins (it runs to a super-slim 80 minutes, for example): filmed at the height of the âRed Scareâ in the United States, its depiction of what its hero, Dr. Miles Bennell, initially dismisses as an âepidemic of mass hysteriaâ in the quiet California town of Santa Mira, in which people fear that their own relatives are no longer who they claim to be, has been interpreted both as an attack on the precepts of Communism â and simultaneously as an attack on anti-Communism. Screenwriter Daniel Mainwaring had some experience of Hollywood âRed Scareâ witch-hunts, whereas Kevin McCarthy considered the film an attack on âMadison Avenueâ attitudes. Its director, Siegel himself, joked that the pod people represented movie industry executives. (What makes Invasion of the Body Snatchers so powerfully evocative, all this time after its first release, is that the fear it conveys â the fear that a loved one has been replaced by some kind of malign doppelgĂ€nger â is a genuine psychiatric disorder, known as Capgras delusion. This fear is especially poignant when experienced by a young child in connection with its parents. This is the essential premise of Invaders from Mars, a 1953 precursor to Don Siegelâs film. And it is why The Shining continues to be ranked as one of the scariest films ever made.)
However you choose to interpret Invasion of the Body Snatchers, however, it remains â at least, in our view â one of the most terrifying films about the power of the mob, and of the dangers of social conformity, that you will ever see.
And of course, the years since 2020 have brought their very own âepidemic of mass hysteriaâ, in the form of the Coronavirus âpandemicâ, in the hysterical coverage of the crisis by the mainstream media â and in the extraordinary medical and economic response of governments and authorities around the world. Fund manager Barry Norris of Argonaut Capital has been particularly outspoken on the inept and perhaps deceitful government response.
What is it that causes people to succumb to the âmadness of crowdsâ ?
The chances are, somewhat bizarrely, that itâs an evolutionarily learned response.
The dangers of social proof
The principle of social proof, a.k.a. âthe herd instinctâ, determines that individuals feel more comfortable when they act just like everybody else. In our ancient hunter-gatherer past, it seems plausible that there were benefits to erring on the side of being risk averse. If a bush stirred whilst âthe herdâ was out hunting, for example, it could simply have been an innocent breeze. But it could also have been a stealthy and deadly predator. It would have made sense to bolt for safety, just in case. Those of our ancient ancestors who refused to run with the herd may well have left nothing but a void as part of their genetic legacy. In a sense, we may all be descended from cowards who at least lived to fight another day.
What was an optimal strategy for the plains of the Serengeti is unlikely to be an optimal strategy for our modern world where most real risk has been safely and distantly consigned elsewhere. But the behaviour clearly lingers. And it becomes self-reinforcing: the more people who behave in a certain way, the more appropriate that behaviour is deemed by others, and the population of the crowd swells.
The psychologist Solomon Asch conducted an experiment in the 1950s to show how peer pressure can distort common sense. You can see it re-enacted here. Subjects were shown a line marked on card, and three adjacent lines, numbered 1, 2 and 3. One of those lines was the same length as the original, the others were either noticeably longer or shorter. When conducting the experiment in isolation, the test subject consistently identified the lines of the same length. But when five actors were introduced into the experiment, each of which had been primed to mis-identify the âcorrectâ comparative line, the subject buckled â and went along with the incorrect answers of the group. It sounds trivial, but social proof can be immensely hard to resist. In the words of W. Somerset Maugham:
If fifty million people say something foolish, it is still foolish.
Notwithstanding which, the legacy media persists.
This social clustering effect accounts for fads, bubbles, and stock market manias â and the resultant crashes, when the crowd finally runs out of new members to perpetuate the trend, so that the bubble spectacularly implodes under its own weight, and the same psychological clustering that drove the rally ends up driving the decline, as everyone stampedes to get back out again.
That sort of end-of-cycle implosion may already have occurred. As Danielle DiMartino Booth tweeted during the early stages of the Covid insanity,
âThe markets are the product of 1999 & 2007 hooking up for a one night stand.â
Judging by Nasdaqâs performance in 2022, the progeny of that brief âliaisonâ has now arrived. We are all at least somewhat aware that the main stock market beneficiaries of the Coronavirus scare were a limited number of US technology giants. That tide appears to have gone out. Jim Mellon for âMaster Investorâ writes as follows:
âAlthough there has been a heck of a bounce in the tech sector in the past six weeks, the tech wreck has further to run, in my opinion, and this might be the last chance saloon for those clinging on to the old FANG [Facebook, Amazon, Netflix, Google] names, as most of them are going ex-growth and are still priced too highly.
âYes, the old favourites like Tesla, Amazon, Meta and Alphabet are not through fighting the bear, but merely enjoying a brief ceasefire.
Over owned by passive funds
âAll of them remain over owned, especially by passive funds, and all of them have fundamental threats looming to their tired business models. Tesla is facing increasing competition from old school and new EV companies, such as BYD in China, Koreaâs Kia, as well as GM and Ford, and frankly, Teslaâs cars are in urgent need of an upgrade/remodel. Yet the company is still on 40x (optimistic) earnings for 2025.
âMeta faces cost pressures, and regulatory scrutiny, as well as a slowdown in digital advertising, and Alphabet has the same to contend with plus the real threat from Chat GPT and Microsoftâs sudden reboot of Bing.
âAmazonâs days of milking its cloud business AWS to sub vent its lousy retail business are coming to an end, and so on, and so on for so many darlings of the tech boom .
âThis doesnât mean that tech (which is a such a broad term as to be almost useless, as just about everything employs tech these days) is over as a stock market hero, but that we need to ride the wave of cyclical stocks, such as miners, material suppliers, banks and so forth for a bit longer.
Avoid the previous darlings
âIn the meantime, my advice is to avoid the previous darlings of the tech boom, including crypto (told you!) and to add some new âavoidâ names , such as Apple which is crazily priced.â
Warren Buffett has famously been a comparatively recent convert to Apple, which as at the end of the third quarter of 2022 accounted for over $126 billion of Berkshire Hathawayâs equity portfolio.
Morgan Housel, author of The Psychology of Money, has penned a damning critique of attitudes towards Berkshire Hathaway, especially in the context of social proof:
âThe Berkshire Hathaway annual meeting in Omaha attracts 40,000 people, all of whom consider themselves contrarians. People show up at 4 am to wait in line with thousands of other people to tell each other about their lifelong commitment to not following the crowd. Few see the irony.
âAnything worthwhile with money has high stakes. High stakes entail risks of being wrong and losing money. Losing money is emotional. And the desire to avoid being wrong is best countered by surrounding yourself with people who agree with you. Social proof is powerful. Someone else agreeing with you is like evidence of being right that doesnât have to prove itself with facts. Most peopleâs views have holes and gaps in them, if only subconsciously. Crowds and social proof help fill those gaps, reducing doubt that you could be wrong.
âThe problem with viewing crowds as evidence of accuracy when dealing with money is that opportunity is almost always inversely correlated with popularity. What really drives outsized returns over time is an increase in valuation multiples, and increasing valuation multiples relies on an investment getting more popular in the future â something that is always anchored by current popularity.
âHereâs the thing: Most attempts at contrarianism are just irrational cynicism in disguise â and cynicism can be popular and draw crowds. Real contrarianism is when your views are so uncomfortable and belittled that they cause you to second guess whether theyâre right. Very few people can do that. But of course thatâs the case. Most people canât be contrarian, by definition. Embrace with both hands that, statistically, you are one of those people.â
Whether âinvestorsâ continue to buy the likes of the FANG stocks, and notably Apple, out of fear (of missing out), or greed at the thought of all those future gains, is something of a moot point. Social proof is driving the bandwagon.
We have long argued that there are, realistically, only two ways of sustainably beating the market return â if you can stick to them. One is value investing (which we would define here simply as securing superior cash flows cheaply), and the other is momentum investing (essentially buying what is working in the market, as manifest in price action, and selling what is not). Value investing qualifies as investing per se, whereas momentum âinvestingâ is, realistically, more accurately described as trading or speculation. No value judgment is implied here. These strategies, both of which we use in our asset management business, are pretty much mutually exclusive. A momentum âinvestorâ is sublimely indifferent to underlying valuation. For as long as the price of X â whatever X might be, whether it be a stock, an interest rate, a currency, or a commodity â is going up, a momentum âinvestorâ will be happy to be long. When the trend breaks, he is equally happy to be flat or short the same position. Price direction is all. Momentum trading is, in essence, a form of portfolio hedging against asset manager overconfidence.
The reason we continue to see merit in the momentum strategy is that, as we have seen for several years now, certain sectors are proving Keynes absolutely right â markets can remain irrationally or at least expensively priced longer than market participants can remain solvent. A fundamental manager would never have participated in the tech stock rally. A momentum trader would â but he would also be careful to get out soon after the market conclusively breaks.
One finding of the Solomon Asch social proof experiment was that if the unanimity of the group is disturbed, the power of the group (to distort correct perceptions) is greatly reduced. For this reason, seeking out alternative or dissenting voices some way apart from the mainstream media can be of tremendous value, both in the context of understanding the world, and assessing how best to invest within it.
âItâs a malignant disease.. spreading through the whole country..â
The Covid counter-measures which pretty much all governments seem to have been keen to embrace have all been controversial for one reason or another. Specifically, forcing people to wear face masks in some specious and grotesque pantomime of hygiene also has implications â not least because people wearing masks will sometimes behave more unreasonably towards their fellow man than people whose faces are clearly visible. Especially if they are being whipped up by a loud and angry mob.
The Covid crisis (strictly speaking â the crisis caused by governmentsâ cack-handed and hysterical over-reaction to Covid-19) was bad enough, but the poison of political correctness and aggressive, race-hustling, virtue-signalling by the likes of Black Lives Matter and Antifa, and the ongoing âMarch of the Wokeâ more generally, lends events of recent years an almost apocalyptic flavour.
Solutions ?
Ironically, the production of the 1956 Invasion of the Body Snatchers was beset with problems, most of which related to the distributors, Allied Artists, acting like pod people themselves. First, there was wrangling over the filmâs title, to avoid any comparisons with the 1945 Val Lewton depiction of the Burke and Hare Body Snatchers. Then the budget and shooting schedule got chopped in half. But as originally conceived, the film was due to end with Kevin McCarthy stumbling down the freeway against the traffic screaming, âYouâre next ! Youâre next !â Allied werenât buying that, so insisted instead on a cheap framing device in which the story as flashback is book-ended by the police calling in the Feds, so that life can return to a happy normality. (Production designer Ted Haworth was apparently so incensed by Alliedâs ham-fisted intervention that he wrote to the studioâs head, Steve Broidy, complaining that they were destroying the film. Haworth had previously worked on Strangers on a Train and I Confess, and he told Broidy that Alfred Hitchcock âwould have given his eyeteeth to have made a picture that frighteningâ.)
But it gets even more frightening â for us, that is.
Weâre not in 1956 any more. In 2023, our civil servants, politicians and our Government canât be the solution â because in many respects theyâre precisely the problem.
Real life doesnât always serve up happy endings on a platter. How we, and our valuable, irreplaceable capital, ultimately fare â thatâs up to us. But if we can manage to resist the various promises and threats of the mob, we like to think that we can probably resist just about anything.
âŠâŠâŠâŠ.
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you, too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio -with no obligation at all:
Tim Price is co-manager of the VT Price Value Portfolio and author of âInvesting through the Looking Glass: a rational guide to irrational financial marketsâ. You can access a full archive of these weekly investment commentaries here. You can listen to our regular âState of the Marketsâ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and specialist managed funds.
Belter.
Mental illness, madness, has always been a category used by the mob to ostracised, exclude and ignore those who will not conform with societal norms. Times of apocalypse reveal the madness of society itself.
Similar themes in the book 'I Am Legend', which was originally about vampires and this inversion that happens when society goes mad, and people who cling to the old heroic truth become the monster. Interestingly subverted when cabal owned Will Smith did the remake, and made it all about viruses, zombies and vaccines.
One truth is inescapable. All dogs will bite, when they eventually have to. The priestly classes of big government, BLM, Greenie-Gaia worship, and Trans activism offer no discernable standards, redemption or rules by which they themselves may be judged. They will fall.
Have you ever written about the original Matrix movie, Tim? I found it interesting that their ship was named after the mad repentant tyrant Nebuchadnezzar.
The Solomon Asch experiment is a stark and constant reminder that the resident foolish among us can be manipulated time and time again to suit any narrative. A stellar Saturday morning piece, many thanks Tim.