The Bo-Fool Theory: The Key to Speculation
In order to be able to focus on academic research and avoid money troubles, the economist Keynes once went out to give lectures to earn class fees. After all, his income from class fees was limited. In August 1919, he borrowed several thousand pounds to engage in forward foreign exchange speculation.
In 4 months, Keynes made a net profit of more than 10,000 pounds, which is equivalent to his 10-year lecture income. Three months later, he lost all his profits and borrowed principal. Seven months later, he dabbled in cotton futures trading with great success.
Keynes made almost all futures varieties, and also dabbled in stocks. In 1937, when he “washed his hands in the golden basin” due to illness, he had already accumulated a huge amount of wealth that he could not enjoy in his life.
Unlike ordinary gamblers, Keynes, in addition to making considerable profits in these speculative businesses, also discovered the “stupid theory”, which is also called “Bo stupid theory”.
What is “Big Stupid Theory”? Keynes gave an example: choose the face you think is the most beautiful from 100 photos of people, and the selected one will win a prize. But which face is the most beautiful face, it is up to everyone to vote. How would you vote if it were you? At this time, because everyone is involved, your correct strategy is not to choose the face you think is the most beautiful, but to vote for whichever face most people will choose, even if that face is too ugly to see. Here, your actions are based on guesses about the public’s psychology, not your real thoughts.
Keynes said: “Professional investing can be roughly compared to this competition held by newspapers. We have to make a choice, which is to use our intelligence to predict the opinion of ordinary people. It has nothing to do with who is the most beautiful woman. What you care about is how to predict other people.” Who do people think is the most beautiful.”
What the “Big Stupid Theory” wants to reveal is the motivation behind speculative behavior. The key to speculation is to judge whether there is a bigger fool than yourself. As long as you are not the biggest idiot, you must be the winner, it’s just a matter of winning more and winning less. If there isn’t another bigger idiot willing to pay a higher price for the next job, you’re the biggest idiot. Any speculator believes in the “biggest fool” theory.
There are many examples in life that are connected with this theory, such as the “Top Ten Athletes” selection. In voting, the incentive for each voter is that if he chooses some people “correctly” (not just ten people, but in the correct order), he will be rewarded. How do you choose the “right” person? Is there a “right” candidate? Is the one with the most votes the correct one? Or strictly speaking, the one with the most votes is the first, the second is the second, and so on. Therefore, the key to voters being able to choose, or the person nominated by him to be elected, is to guess what others think. If you guess right, you win; if you guess wrong, you lose the prize. Here, we can see that there is no right or wrong, or who should be elected and who should not be elected, it is just the result of mutual guesswork by voters. Of course, in this process, the guiding role of public opinion is very important. Public opinion always seems to tell people that so-and-so is the choice of many others.
In fact, in the futures and stock markets, people follow this strategy. Many people buy stocks at high prices and sell them quickly when the market rises to be profitable. This kind of operation strategy is usually called “fools win fools”, and it can only be used when the stock market is rising. In theory, there is also a rational side to being stupid. Bo silly strategy is that there are high prices above high prices, and low prices below low prices. The rules of the game are like playing a baton, as long as you don’t receive the last baton, you will be profitable. Those who are long will make profits, and those who are short will reduce their losses. Only those who receive the last baton will be unlucky.
The reason why people pay a premium for something regardless of its real value is that they expect a bigger fool to buy it from them at a higher price. For example, if you don’t know the real value of a certain stock, why would you spend 20 yuan to buy one share? Because you expect someone to pay a higher price to buy it when you sell it.
Of course, someone is bound to be the last fool. In 1720, there was such an episode in the speculative frenzy of British stocks. An unknown person created an unfounded company, and no one knew what kind of company it was from the beginning to the end, but nearly a thousand investors scrambled to knock down the door when subscribing. Not many people believe that the company their shares belong to is actually going to make a lot of money, but they expect a bigger idiot to come along, the price will go up, and they will make money. Interestingly, Newton participated in this speculation and became the last fool. He sighed: “I can calculate the trajectories of celestial bodies, but the madness of people is really hard to estimate.”
One day, a man went to the cultural relics market, and the merchant sold him a coin, which was golden. The merchant said it was a gold coin and it would cost 100 yuan. This person can tell at a glance that it is brass, and it is worth 1 yuan at most. The man said to the businessman: “I will not buy something worth 1 yuan, but I will buy it for 100 yuan, but I am willing to buy it for 5 yuan.” . The friend of this person found out about this and said to him, “You are so stupid. You pay 5 yuan to buy something you know is worth 1 yuan, aren’t you a fool?” The person said, “Yes, I am stupid, but I know someone who is more stupid than me. I bought something for 5 yuan, and soon someone even more stupid bought it for 10 yuan.” After a few days, this person really put ” “Gold Coin” was sold for 20 yuan.
This person’s theory is that it doesn’t matter if he buys expensive, as long as he finds a more stupid person, he will succeed.
The Bo-fool theory tells people the most important truth is that in this world, being stupid is not terrible, what is terrible is being the last fool.
