Blinders On
Opened in 1863, the Saratoga Race Course is one of the oldest sporting venues in the country. Working in the heart of Saratoga Springs, I am exposed to an endless stream of horseracing culture. Whether it be stores selling fancy hats meant to be worn to the track or local restaurants naming sandwiches after famous thoroughbreds, there is a constant reminder of the famous track in town. Using that setting as a backdrop, allow me to relate an aspect of horseracing that investors can use as they think about their investments.
Blinkers (or blinders) are used by trainers to keep certain horses focused on the race at hand. Due to the shape of their head and the location of their eyes, horses are built to have an expansive field of vision (almost 350 degrees). Keeping an eye on their surroundings served them well on the wild plains where there was a constant threat of predators, but it can be detrimental if the objective is winning a race. Any one of a million distractions can throw the horse off and cause it to underperform. I don’t think it’s a stretch to assume that everybody reading this knows where this analogy is headed.
Much like our equine friends, humans are conditioned to feel safety in numbers. This causes us to evaluate ourselves relative to our peers in essentially every aspect of our life. What kind of car is my neighbor driving? Did you get this answer on the test? How did your 401(k) do last year? Safety in numbers is essential as a survival mechanism, but it can be detrimental to one’s personal financial journey. This inherent bias manifests itself in a few different ways: keeping up with the Joneses, changing an investment strategy on the fly, and getting caught up in a speculative mania. For today, we will focus on the manias.
In Edward Chancellor’s fantastic book, Devil Take the Hindmost, he details the environments surrounding speculative bubbles dating back as far as the 17th century. Despite different time periods, different cultures, and different people, the story stays the same. There is some sort of new technology or investment opportunity, early adopters are making money hand over fist, speculation and bad actors run rampant, and most people are left without a chair when the music stops. Most recently, we have seen this in the cryptocurrency world. Bitcoin, Ethereum, and a host of other coins saw their values take off in 2017. Stories were everywhere of people getting rich after getting in on the ground floor. The whole time, people on the sidelines were thinking, “why not me?” I’d be lying to you if I said I didn’t feel the fear of missing out tugging at my wallet to get involved in bitcoin when it was doubling in price every month or so. The problem was, how many people who were “investing” in cryptocurrency back then could explain what it actually was? More likely than not, their blinders were off and they were distracted by what could be the next big thing. Can you blame them with headlines such as the one seen below?
This isn’t an attempt to besmirch bitcoin or any other cryptocurrencies. After all, previous bubbles like railroads and the internet gave rise to legitimate industries and I believe there are a variety of use cases for blockchain technology. The key here for everybody is just to put those blinders on, focus on your goals, and run your own race. Nothing else matters.