The Bosses of Fools: Keynes’ Theory of Speculation

  In order to be able to focus on academic research and avoid financial worries, economist Keynes once went out to give lectures to earn tuition 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 four months, Keynes netted more than 10,000 pounds, which was equivalent to his income from lecturing for 10 years. Three months later, he lost all the profits he made and the principal he borrowed. Seven months later, he got involved in cotton futures trading and achieved great success.
  Keynes developed almost all futures products and also dabbled in stocks. In 1937, when he “washed his hands in a golden basin” due to illness, he had already accumulated a huge wealth that he could never enjoy in his lifetime.
  Unlike ordinary gamblers, Keynes not only earned considerable profits in these speculative businesses, he also discovered the “idiot theory”, which some people also call “the fool theory.”
  What is the “Bo Fool Theory”? Keynes gave an example: choose the face you think is the most beautiful from 100 photos of people, and the selected person will win a prize. But which face is the most beautiful is decided by everyone’s vote. If it were you, how would you vote? 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 ugly. Here, your behavior is based on speculation about popular psychology, not your true 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 opinions of ordinary people. It is not about who is the most beautiful woman. What you care about is how to predict other people.” Who is considered the prettiest.”
  What the “Boss Fool Theory” wants to reveal is the motivation behind speculation. The key to speculation is to determine whether there is a bigger fool than yourself. As long as you are not the biggest fool, you will definitely be a winner. It is just a matter of winning more and winning less. If there is no bigger fool willing to pay a higher price to make the next move, you become the biggest fool. Any speculator believes in the “biggest fool” theory.
  In fact, in the futures and stock markets, people also follow this strategy. Many people buy stocks at high prices and sell them quickly when the market rises to a profitable level. This operating strategy is often called “fools win over fools” and can only be used when the stock market is on the rise. Theoretically speaking, there is also a reasonable side to Bosi. The Bo Fool strategy is that there are high prices above high prices, and there are low prices below low prices. The rules of the game are like playing with a baton. As long as you don’t catch the last baton, it will be profitable. Long sellers will make profits, short sellers will reduce their losses, and only those who catch the last baton will be unlucky.
  The reason why people are willing to pay a high price for something regardless of its true value is because they expect that a bigger fool will pay a higher price to buy it from them. For example, if you don’t know the true value of a certain stock, why would you spend 20 yuan to buy one share? Because you expect someone will pay a higher price to buy it when you sell it.
  Of course, someone is bound to be the last sucker. In 1720, there was such an episode in the British stock speculation frenzy. An unknown person created a fictitious company. From the beginning to the end, no one knew what kind of company it was, but when it came time to subscribe, nearly a thousand investors rushed to knock down the door. Not many people believe that the company their stock belongs to will actually make huge profits, but expect that bigger fools will appear, prices will rise, and they will make money. Interestingly, Newton participated in this speculation and became the final fool. He sighed: “I can calculate the trajectory of celestial bodies, but people’s madness is really hard to estimate.”
  One day, a man went to the cultural relics market, and a businessman sold him a gold coin. The businessman said this was a gold coin and he wanted to sell it for 100 yuan. The man could tell at a glance that it was brass and was worth at most 1 yuan. The man said to the businessman: “I definitely won’t buy something worth 1 yuan for 100 yuan, but I am willing to spend 5 yuan to buy it.” Seeing that he knew the goods, the businessman did not dare to lie anymore, and finally settled the deal for 5 yuan. . The man’s friend found out about this and said to him: “You are so stupid. You know it is 1 yuan, but you spend 5 yuan to buy it. Isn’t that a fool?” The man said: “Yes. I’m stupid, but I know there are people who are more stupid than me. What I bought for 5 yuan was quickly bought by someone even more stupid for 10 yuan.” After a few days, this person really bought it for 10 yuan. The gold coin” was sold for 20 yuan.
  This person’s theory is that it doesn’t matter if he pays too much, as long as he finds someone stupider, he will succeed.
  One of the most important truths that the “Bosses of Fools Theory” tells people is that in this world, being stupid is not terrible. The most terrible thing is to be the last fool.

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