Ideologues or Fools?

Bias in regular discourse is a matter of one man’s principle versus another man’s dogma. This is complicated because it is often rational to pursue a theory in spite of inconsistencies because no theory is perfect (e.g., Newtonian mechanics do not work at some level, but are still pretty good ‘laws’). It is difficult to know when to deviate from principle in light of evidence, and how to distinguish between principle and dogma. Bias, dogma, fundamentalism, fanaticism, are all bad things, while principle and theory are good.

In contrast, market disagreements are a refreshingly empirical and rational alternative to those with different prior beliefs about politics. Portfolio managers consistently ‘agree to disagree’ and no portfolio managers use the words dogmatic or biased. Instead they use the terms fool, idiot, and moron. These are less morally charged words, aimed at errors in thinking, as opposed to malice. One mutual fund manager may be long Google, the other may ignore it. In the hedge fund world, things can be crazier because investors aren’t constrained to be long: one investor can be short something another investor is long. In markets these disagreements are common, and investors consider their own beliefs ‘wiser’ than the others. Market participants realize, however, that this is largely an empirical matter, and further, that small sample sizes relevant to investors are tentative (eg, the market can be irrational longer than you can be liquid).  Further, they worry much more about their beliefs, as to whether they are correct or wrong, much more so than a typical pro/anti-abortion zealot. No one talks about a ‘dogmatic’ investor, because if he invests based on dogma, he will suffer—he’s merely a fool, full of hubris, thus posterity will punish him so you don’t have to. There is no ill-will towards those who disagree, only envy when you are wrong, and (patronizing) pity when they are wrong.

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