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The Emperor’s New Clothes

August 18, 2015

From what I see, a common reason many people make an investment is that “everyone is doing it.”  Well, that is one of the stupidest reasons to do something.  Now is a good time to remind you of a story we all know too well, but frequently do not heed, especially when investing.  cloth colorful

The Emperor’s New Clothes was written by Hans Christian Andersen in 1837 and certainly holds true today.  In the story, a disreputable tailor promised a very vain Emperor he would weave a new suit for him that would be invisible to anyone that is stupid, unfit for their positions or incompetent.  When the “suit” was completed and the Emperor dressed in it, the Emperor’s ministers couldn’t see anything.  However, so they would not appear unfit for their position they pretended they did and said how much they liked it.  The new suit and the accolades from the ministers was so well publicized that the Emperor decided to proudly parade around his subjects.  None of his subjects dared to say anything also afraid they would be considered stupid, unfit or incompetent.  The charade continued until a child too young to understand cried out “He isn’t wearing anything!” However, the Emperor not wanting to be caught being deceived, continued on as if nothing was said.

This story also reminds me of a speech Warren Buffett gave in 1999 about the tech stock bubble that I wrote about in my blog on October 28 2014.  At that time, he did the crying out but was dutifully ignored.  We also still have some bubbles only to see them plummet.  Some things never seem to change.  But, they can if you take the effort to understand what you are doing and realize that following the herd based on invisible claims and what “everyone is doing” is not the way to go.

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