Investing in the stock market, an activity that people have typically pursued alone, has become “the hottest way to socialize,” according to a recent Wall Street Journalarticle by columnist Jason Zweig, who warns, “happy outcomes are rare when groups of people egg each other on in a risky activity.”
“Friends get together on Zoom to ‘live-trade’ stocks just as they watch movies or TV together,” Zweig writes, adding that the activity has “given people something to talk about other than politics and the pandemic.”
Unfortunately, however, such an approach to investing can turn problematic, according to Zweig.
Even the best investors, he argues, “benefit from a sidekick and sounding board to listen to and learn from. Warren Buffett has Charlie Munger” a friend Buffett affectionately refers to as “the abominable no-man” for his “tendency to shoot down suggestions.”
Zweig points out, however, that while online trading buddies “can lift you up when you’re feeling down and make you feel you belong,” real friends “tell you when you’re wrong.” Buffett told Zweig that he values his friendship with Munger not just because of Munger’s good ideas, “but because he destroys bad ones.”
The problem with “social” investing, Zweig says, is that a collective itch to get rich quick can lead to “imitation rather than education,” and that a market work best when it “collects huge numbers of differing viewpoints” rather than masses thinking alike. This is especially true in a bull market, when asset prices can rise quickly, he adds: “How can you admit you don’t know what you’re doing when you’ve made so much money doing it?”
“As long as markets go up,” Zweig notes, “that’s a profitable strategy. Markets don’t always go up, however–and then the self-fulfilling prophecy will turn into a doom loop of loss and panic.” What investors need most right now, Zweig asserts, “isn’t affirmation from hordes of strangers who think alike. They need pushback and skeptical analysis from people who have more—and different—experience than they do.”