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Everyone Is Buying It -- But Should You?


Consider the spectrum of possibilities rather than a single outcome.


I bought a ticket to the world
But now I've come back again
Why do I find it hard to write the next line
When I want the truth to be said
-Spandau Ballet

"Everyone is bullish right now."

"Everyone is short the market currently."

I frequently hear myself uttering such sweeping claims. As such, I suffer from "Everyone-is" syndrome.

Everyone-is syndrome is wrongheaded, of course. Markets couldn't function if bullish and bearish views didn't co-exist. If everyone is indeed bullish on Bank of America (BAC), Exxon Mobil (XOM), or Procter & Gamble (PG), for instance, then who are the folks on the sell side of the tens of millions of shares traded daily in these securities?

At least 2 factors drive my Everyone-is tendencies:

1. Confirmation Bias

People generally prefer information that confirms their view of the world. Recently I've become bullish on big-pharma stocks such as Merck (MRK) and Pfizer (PFE). As such, I'm attracted to arguments that support the bull case, and I tend to dismiss arguments that support the bear case for pharma names.

2. Not Thinking Probabilistically

People possess a general inclination for thinking in terms of "all or none." Currently, few market-related debates are louder than the inflation versus deflation macro debate. Like many, I've crafted a view of where the macro picture is headed. However, I tend to focus on a single picture of what I think will happen rather than on various scenarios that may happen. As such, I'm ignoring the spectrum of possibilities in favor of one potential outcome. I'm thinking deterministically rather than probabilistically.

While Minyanville has strengthened my financial decision-making processes in more ways than I can count, the 'Ville's core mantra of '"seeing both sides of the trade" has been an effective tool for helping me keep my Everyone-is faults in check.

This may sound silly, but I try to take time out each morning to remind myself that for every buyer, there is a seller, and that I'd be better off if I endeavored to understand both perspectives. I've found that by ritualizing this little exercise, I'm more prone to think critically across the spectrum of chance, and to suppress my chronic condition of Everyone-is syndrome.

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positions in MRK, PFE

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