by Humphrey B. Neill
Although usually thought of as ‘find out what the market is doing and do the opposite’, contrary thinking in this context is much more than that. It is actually the art of critical thinking. To question the basis for standard or conventional wisdom.
“Thrust your thoughts out of the rut.” – Be non-conformist when using your mind. Eliminate sameness in thinking.
“When everyone thinks alike, everyone is likely to be wrong.” Think with your head as an individual and not with your heart like the crowd.
The art of contrary thinking is training your mind to ruminate in directions opposite to the general public opinions; but weigh your conclusions in the light of current events and current manifestations of human behaviour.
The distinction between a crowd and an individual is this; whereas an individual may act after reasoning and analysis, a crowd acts on feelings and emotion. Crowds follow ‘leaders’ or follow what they assume to be the actions of leaders.
A crowd is susceptible to ‘contagion’ – If an idea attracts a few people, it is likely to spread and soon attracts numbers of crowd or everybody.
Because a crowd does not think, but acts on impulses, a crowds opinions are frequently wrong.
Because a crowd is carried away by feeling or sentiment, you will find the public participating enthusiastically in various manias after the mania has got well under momentum.
The primary characteristic of a crowd is its susceptibility to suggestion. Suggestions, in turn, are contagious.
However indifferent it may supposed to be, a crowd, as a rule, is in a state of expectant attention, which renders suggestion easy.
Think for a moment how common gossip will run through a town like the wind through the trees. You wonder how it can travel so fast. Such stories are often enlarged as they fly about. It is the same with economic and business news – or political news.
A crowd thinks in images, and the image itself immediately calls up a series of other images… -When rumours of a coffee shortage, people immediately go out and hoard coffee.. They don’t think that the stories may be exaggerated.
Crowds do not stop to think. The power of suggestion is what motivates their action.
Truman had a copy of ‘The Crowd’ in his hip pocket when he toured the nation in 1948.
Given to exaggeration in its feeling, a crowd is only impressed by expressive sentiments. An orator wishing to move a crowd must make an abusive use of violent affirmations.
To exaggerate, to affirm, to resort to repetitions, and never to attempt to prove anything by reasoning are methods of argument well known to speakers at public meetings.
Is the public always wrong? – No The public is probably right more often than not. In stock market parlance, the public is right during the trends but wrong at both ends.
“The public is always wrong when it pays to be right – but is far from wrong in the meantime.”
It is to be noted that the use of contrary opinions will frequently result in one’s being rather too far ahead of events.
A contrary opinion will seldom ‘time’ ones conclusions accurately.
The “time element” is the most elusive in economics. Therefore, when we adopt a contrary opinion, as a guide, we must recognize that we may be too far ahead of the crowd. This is because economic trends are often very slow in turning or reversing.
The public is not wrong all the time – and a contrary opinion is usually ahead of time.
In the first place, it is contrary to one’s natural reactions to be contrary to general opinions. Moreover, others with whom you discuss your contrary opinions will most always violently disagree – will find numberless reasons and arguments to show you you’re wrong in your adverse viewpoints. It will be difficult to stick to your contrary viewpoints because it will seem so obvious that you should be thinking as others are. Furthermore, it often takes a long time to prove out your point. This weakens your faith, because you begin to fear your contrary ideas are the wrong ones.
To be contrary means to be opposed to the obvious – and that is frequently quite baffling.
“Doubt all before you believe anything.” – Sir Francis Bacon
In Novum Organum – “In general, let every student… take this as a rule – that whatever his mind seizes and dwells upon with peculiar satisfaction, is to be held in suspicion; and that so much the more care is to be taken, in dealing with such questions, to keep the understanding even and clear.”
If we fail to take crowd opinions into consideration, when arriving at conclusions concerning economic and political events, we shall most certainly make many errors in forecasting.
It is far easier to be contrary to general opinions than it is to create original thought. It pays to be contrary as it may keep you from guessing wrong.
Follow the course opposite to custom and you will almost always do well.
The average investor does not think and does not wish to think. Automatic forecasting methods relieve investors from sweating it out for themselves.
They can “read” the findings of a given market-swing method and thereby avoid the backbreaking pick-and-shovel work that is necessary if one wishes to uncover the rich pay dirt that lies deeply buried. Prospecting for true values is hard work! Mr May’s “buy values” concept is without question a sound approach, but it requires applied head work and mental discipline. It will never be practiced by a large segment of the public.
Thus, the writer predicts that contrary opinions will remain valid as a guide until public psychology changes – and it has not hanged in centuries. So long as the investing public (and many of its advisers) acts as a “crowd”, it’ll pay to be contrary.
BUT – if one relies on the Theory of Contrary Opinions for accurate timing of his decisions he frequently will be disappointed.
Every division of the mind is habitualized- “Everyone has thought-habits as well as habits of skill. One person can predict the general kind of judgement another person will pass ten years from now, because ways of thinking become stereotyped. Everyone has feelings-habits. Very few feelings are new and fresh; we have experienced most of them before. Attitudes are mostly feelings-habits… Everyone has emotional habits and habits of perception.
Through habits we develop routines of action and thinking. This applies to business and financial thinking just as it does to daily routines of eating and dressing.
Habits push our mind into ruts “he’s sot in his ways,” and it takes considerable amounts of force and time to get out of the ruts.
When everyone ignores a vital subject, it is likely to be important to everyone.
The subjects with the greatest influence, but holding the smallest public interest, are money and banking (money of course includes credit)
To limit the supply, make money scarce and dear; To increase the supply, make money plentiful and cheap. Or this; Cheap money makes things dear. Inflation. Dear money makes goods cheap. Deflation.
A common fallacy is the idea that the majority sets the pattern and the trends of social, economic and religious life. History reveals quite the opposite; the majority copies, or imitates, the minority and this establishes the long-run developments and socio-economic evolutions.
“Paradoxical as it may seem, the starting point for crises and depressions may be found in abundance rather than in scarcity, whether of money or capital.”
Trotters summary of the more obvious gregarious characteristics we display:
Man is intolerant and fearful of solitude – physical or mental. [the vast majority of people dislike to be alone. If we have to spend a day all by ourselves most of us become bored with our own company]
He is more sensitive to the voice of the herd than to any other influence. [The theory of following the crowd]
He is subject to passions of the pack in his mob violence and the passions of the herd in panics [Economic panics reflect this characteristic also]
He is remarkably susceptible to leadership [One immediately thinks of Hitler/Napoleon but history books contain countless stories of mob leadership]
His relations with his fellows are dependent upon the recognition of him as a member of the herd. [Here we get into the psychological excuses for ‘popularity contests’ and the new science of ‘human relations in industry.’]
If the habit of contrary thinking does no more than to teach us to develop our own resources – and to like to be alone occasionally – it would be worthwhile; because when alone we might fall into the habit of actually thinking through a given subject, instead of taking the other fellow’s word for it.
If you cant think through a subject, you’re through thinking.
An aid to thinking is found by taking prominent assertions and allowing your mind to roam over all the ‘opposites’ and ‘alternates’ you can think of. This is called ruminating.
The theory of contrary of opinion is just a WAY of thinking. It is not to be overweighed. It is not a system to beat the horse races nor a crystal ball. It is nothing more than developing the habit of doing what every textbook on learning advises, namely, to look at both sides of all questions. Or as Francis Bacon put it, “Doubt all before you believe.”
The majority of people acquire information and form opinions second-hand from something they read hurriedly or with half an ear.
The mass education system, although implemented with good intentions, has had the result of encouraging mass unthinking. People will believe any deleterious nonsense presented to them under the guise of authority, or in the written word.
So let us employ contrary opinions in order to avoid the errors of mass unthinking and then use common horse sense to arrive at decisions.
When some important prediction is being aired, we must ask ourselves, “That may be very well for the short swing, but how will it work over the long pull?
In other words, we can be contrary to timing as well as to events.
Another way contrary thinking helps us is in avoiding the costly habit of judging the future by the present. – Because it is sunny and warm today does not mean it will be sunny and warm tomorrow. Don’t project today into tomorrow without thought of what might happen during the night.
We think of men leading us, as a horse draws the cart. But actually, the events drag the leaders after them.
“General welfare is derived from more crumbs falling off the increasing number of wealthy tables; not by taking away the tables and making everybody eat at a trough.”
Try it, or indeed make it a habit, to ask “What’s right?” With a business, a market etc than to ask “What’s wrong?” -You might get fresh ideas. the mind travels in new channels Dwarf your troubles and magnify your blessings.
Students of crowd psychology know that the average voter pays scant attention to the fundamental facts concerning either the candidate or the platform. He accepts “what he feels”.
“For as soon as a belief has gained a lodging in the minds of men its absurdity no longer appears; reason cannot reach it, and only time can impair it.
‘Crises and depressions have occurred almost contemporaneously in different countries, under every prevalent system of banking. Monarchies and republics. Free trade and protective tariffs etc.
A basic usefulness of contrary opinions is to guard against predicting the unpredictable – to avoid being ensnared by faulty general predictions. I believe it is correct to say that the theory is more valuable in avoiding errors in forecasting than in employing it for definitive forecasting.
Well known economist Dr L Albert Hahn upon reviewing the ‘wrong’ forecasts of recent years (post-war bust and deflation) said this;
“Predicting the Unpredictable”
“Clearly the regularity of these errors in forecasting cannot be pure chance. Something like a Law of the Necessity of Errors in Forecasting must be at work.”
“It is seldom realized that belief in the possibility of “scientific” business forecasts, and the forecasting mania of our time, are comparatively new phenomena. Until about 1930 serious economists were not so bold – or so naïve – as to pretend to be able to calculate the coming of booms and depressions in advance. It would not have fitted into their general view of the working of a free economy. They considered the economic future as basically dependent on unpredictable psychological reactions of entrepreneurs. Predictions of future business conditions would have seemed to them mere charlatanry, just as predictions, say, regarding the resolutions of Congress two years from now.
“The basic error of the whole (Keynesian) approach lies in the fact that the causative link between objective data and the decision of the members of the community are treated as mechanical. But men are still men and not automatons.
Forecasting the economic future means forecasting decisions on investment and consumption that are as uncertain as the whole future…
What leads to the maldistribution of demand – called the business cycle – is that the majority of entrepreneurs are at times too optimistic or too pessimistic; that they either invest too much and too soon, or too little and too late…”
He also wrote;
“Calculated depressions do not happen. Nor, by the way, do calculated inflations – thought it was so popular, just before the latest recession in commodity prices [1951] to calculate a new inflation in advance. A recession [in prices] was clearly due the moment theorists began to speak of our age as the age of permanent inflation…”
Contrary opinions are not of important value in guessing election outcomes;
Generally speaking, national elections fall into 2 categories. (1) a contest, the outcome of which is a foregone conclusion; therefore the contrary opinion would be wrong guessing merely for the sake of being contrary. (2) a contest so close that it is a tossup until the last who will win; in which instance there would be no general viewpoint to be contrary to.
Money Minds
The invincible success of American capitalism rests upon an unbeatable formula:
Money-making minds plus engineering genius equals constant growth.
Money making is a mental characteristic. It is Humphreys belief that it is an exceedingly difficult art to acquire; that, indeed, one is born with it. You have an acquisitive nature, or you haven’t.
With those who have the natural aptitude for money-making it makes little difference whether ‘conditions’ are rising, falling, or stabilizing. Their minds grasp opportunities to make money; which is to say that they have the faculty of making their opportunities. They may lose everything through overspeculation but they are quick to make a comeback (until age dulls the mental characteristics that have to do with money).
Education has little or nothing to do with the money-making characteristic. You have known and read about numerous men who were ignorant from a schooling standpoint, who have amassed fortunes.
Equality in money-making, as in other undertakings and professions, is beyond the reach of nature. Superior abilities of all types are in the minority.
Gustave Le Bon in ‘The Psychology of Peoples’ wrote- “history shows that it is to the circumscribed elite that we owe all the advances made.”
“If we allow ourselves to be too much blinded by our dreams of universal quality we shall be the first victims of our attitudes. Equality carries inferiority in its wake…”
Let us be thankful for the minority that is endowed with superior attributes. Those of us who lack them can strive to copy!
Why forecasts go haywire
The more prominence predictions receive the more inaccurate they are likely to be.
It would appear that composite predictions by authoritative forecasters can never prove out because their acceptance will be their downfall.
If you believe the predictions, you act against them to protect yourself. Thus, you help the predictions to go haywire.
Revolutions require the long view
One of the principles of contrary thinking is to void wishful thinking and preconceived opinions.
“The true revolutions, those which transform the destinies of the peoples, are most frequently accomplished so slowly that the historians can hardly point to their beginnings. The term evolution is, therefore, far more appropriate than revolution.”
Imitation and Contagion
The theory of contrary opinion hinges on these “laws” of imitation and contagion. It is therefore suggested that we keep these two “social ideas” constantly in mind, and occasionally to reflect on their potency as motivators of crowd behaviour.
Imitation takes 2 forms. Imitation and, counter-imitation.
“Every positive affirmation, at the same time that it attracts itself mediocre and sheep-like minds, arouses somewhere or other in a brain that is naturally rebellious – a negation that is diametrically opposite.”
Conforming
One question which may be asked today, when an employee of a huge corporate combine is being considered for advancement is this; Is he a company man? Is he an individualist? Does he subscribe to the gospel of “group-think”? Does he conform?
As the majority are happier when they conform, there will always be a supply of “company men”. Nonconformists are in the tiny minority.
We have entered the era of group management. Mass conformity has naturally gone along. However, May it not be that cyclical movements will be of greater (rather than lesser) intensity in the future, because of this development of mass conformity?
Looking two ways at once
Humphrey looks at the theory of contrary opinion as an antidote to general predictions – through contrary anticipations – rather than as a method of definitive forecasting.
In a free and just commonwealth, property rushes from the idle and imbecile to the industrious, brace and persevering.
There is value in confusion and uncertainty. Consider the opposite; dogmatism.
More important errors in decisions arise from dogmatism than ‘confused considerations.’
One man’s opinions are no more likely to be correct than those of any economic observer. But, a breakdown of other observers’ opinions, and how those opinions may prove wrong, is often of value.
Contrary opinions are ‘thought starters.’ They are “thoughts before leaping” to prevent “jumps before concluding.”
Be a nonconformist in your thinking
Let us consider the extremes of general public optimist and pessimism. You’ll observe a peculiar twist of human nature.
When economic affairs are booming and “everybody” feels cheerful, optimistic, and prosperous, no one wants to hear disparaging remarks of bad news about how things are going. People wish to enjoy their optimism. They do not wish a wet blanket thrown over their wishful thinking. If someone suggests that booms and periods of optimism always overshoot the mark and bring about corrective reactions, the said someone is called a “prophet of gloom” and told to shut his pessimistic mouth.
That is one side of the coin of human traits.
At another time, when the economy has been slumping and “times are bad,” the then opposite psychology prevails. People then wish to enjoy their misery. They do not wish that wet blanket removed. They get into the frame of mind that allows them to believe that everything is in bad shape. What is more, they expect that things will remain that way.
It seems to be a fixed trait of human nature that people (as a mass) get their minds into a rut in accordance with the ruling trends.
Rut-thinking is a common trait. I have said that the art of contrary thinking may be stated simply: Thrust your thoughts out of a rut. Be a nonconformist when using your mind.
The nonconformist knows that life is full of ups and downs. When everything is up he recognizes that there will be a time ahead when everything will be down.
Being a nonconformist, he further recognizes that the ups and downs are not predictable as to extent or duration. He therefore cares little for precise “tops” or “bottoms” – he doesn’t try to measure the exact magnitude of the ups and downs because he knows there is no reliable yardstick.
If you wish to bring this philosophy down to its practical application you will be comfortably cogitating on what your plans will be when the up shifts to down… and vice versa.
History reveals both a steady growth factor and cyclical characteristics in socio-politico-economic trends.
The reason the contrarian needs to be aware of history, in this regard, is because changes in trend occur before the masses are consciously observant of the fact. Also, because when socio-political conditions seem to revolve and repeat, the average person (of brief memory) is unaware of the “cycle” and is likely to think that a “new” condition has developed.
Grave indeed is the situation, when even governments, whose essential role is to foresee, refuse to look ahead; when unstable democracies, in their political capacity, are satisfied with little more than the prospect of the next elections.
People desire stability and security. But in seeking this social “constant” they may succumb to socio-political “myths” and delusions that lead to instability and insecurity. There is then the return road which has to be traversed.
Boom conditions create highly hopeful and optimistic “thoughts.” Depressed conditions cause depressed sentiments and pessimism.
During prosperous periods human traits in the ascendency are greed, hope, susceptibility, impulsiveness, pride-of-opinion, credulousness and wishful thinking.
When slumps occur, other traits take over people’s thinking, such as fear, irritability, indecisiveness and incredulity and doubt.
Two motivating opinion makers – Imitation and Contagion – are “constants,” however. They remain in action throughout the revolutions.
The “crowd” is most enthusiastic and optimistic when it should be cautious and prudent; and is most fearful when it should be bold.
A war spirit is an aroused emotion. A government doesn’t go around quietly asking people if they wish to go to war. A series of charges against the ‘enemy state’ is trumped up; cries against the aggressor pour fourth, as the propaganda machine gets in motion. An image is fashioned in the peoples’ minds of this dangerous. armed ‘imperialist’ who is about to take their homes and ruin their existence.
In other words, foul propaganda is employed to stir up hatred against the ‘enemy’ (who before may have been a friendly trading partner in world goods). When the emotions are kindled to a high heat the masses will actually want war, and the government can take the position that war was forced upon it, the people demanded it.
An individual may think out his opinions, whereas a crowd is swayed by emotional viewpoints rather than by reasoning or reason-why arguments. Emotional and thoughtless opinions spread widely from imitation and contagion.
How opinions are formed
Obviously, a few million people do not sit down of a Sunday morning and suddenly arrive at an opinion. Opinions are planted in people’s minds and sprout when fertilized.
None of us can estimate the vast amount of opinion-forming that is attempted in our reading matter. Newspapers and magazines (and privately printed ‘letters’) are loaded with viewpoints and impression – and true-to-facts, a lot of it misleading, and a good deal of it misinformed or false.
One editor in a large news-syndicating office told me that 90% of the news we read is ‘manufactured’ by publicists, public-relations experts, and by specialists in influencing the Mind of the Crowd. The figure is no doubt exaggeration but the condition exists to a far greater degree than readers realize.
When speaking of manufactured news, don’t overlook the government agencies. Opinion-building is constantly at work in Washington, London, Paris and in Moscow.
It is the business of leaders and statesmen to FORM public opinion, to direct the thought of a nation in predetermined ways – Dr Abram Lipsky – The Puppet: The Art of Controlling Minds; Persuasion is Part of the Art of Government.
On public matters, few men have opinions. To which we might add that the same holds true in economics and finance. Most people take their financial – economic opinions, at they do their stock-market viewpoints, from tips, overheard conversations, columns and advertisements, and from gossip about what mythical ‘they’ are doing or are going to do.
Thus are opinions formed and spread. Contagion woks fast. Moreover, inasmuch as crowd-opinions are seldom well-founded, and frequently ill-timed, it is found that CONTRARY opinions are indispensable to clear and accurate thinking.
Read-and-Needle is the contrary way
There is tight and loose thinking, just as there is tight and loose money. And you can say there is a mental gap as well as a dollar gap.
There is a vast difference between an open mind and a gapping mind.
An active open mind is ready for ideas – pro and con – and is prepared to arrive at a conclusion. An open mind is not a wishy-washy one, whereas a gapping thought apparatus takes in opinions and ideas of others and goes to sleep on them without further examination.
Forcing oneself to be definite and specific can cause more wrong guesses and forecasts than anything.
Being POSITIVE, SPECIFIC, and DOGMATIC is about the most harmful habit one can fall into.
Triadic Law – Thesis, Antithesis and Synthesis
Every theory, every reality has three aspects or stages; it is the unification of two contradictory elements, of two partial aspects of truth which are not merely contrary, like black and white, but contradictory, like same and different. The first step is a preliminary affirmation and unification, the second a negation and differentiation, and the final a synthesis.
a) The general opinion (prevailing thesis) b) The contrary, or sceptical analysis (the antithesis) c) The conclusion you arrive at (or synthesis of the common and opposing viewpoints)
Our thought process should be something of this order; Take the leap from the General Opinion to its Opposite and then, from the ideas thus released, work back to a speculative and reflective conclusion, or synthesis. In this way, we may avoid denying facts which are elements in the generalized opinions we are analyzing contrarily.
— Does it not appear that over the long future, the synthesis of communism and capitalism (opposites) will be ‘a little of each’? Shall we not continue to veer toward a socialized capitalism while the communists drift into a form of capitalistic socialism?
Social pressure often breeds conformity
There was a psychological study testing conformity and engineered consent. Judging the length of black lines in a close quarters environment. People who ordinarily had a less than 1% error rate gave the wrong answer 36% of the time under group pressure.
About one quarter of the subjects tested never lost their independence of judgment, while conversely, some were never able to break free from the herd.
Why do you think you think?
Contrary considerations compel deliberation and forestall headlong decisions.
Contrary opinions do not forecast but they do check others forecasts.
The fallacy in economic extrapolation
Some things can be extrapolated well. Forecasts in things such as the birth-rate etc. The problem in extrapolation comes when humans have to decide something.
Young people are optimistic, and fondly extrapolate the buoyancy of the present. They are not prepared to face a downturn because they view society as an extension of themselves.
— Thousands of executives have never experienced an all-out depression.
How to look ahead – Profitably.
The common method of looking ahead is to assume that what is now happening is likely to continue in the same manner. This is termed ‘extrapolation’ To extrapolate means, in non-technical language, to calculate ahead from conditions as they exist in the present.
Humphrey’s 3 steps;
Establish the extrapolation (e.g. the current stock-market trend is up, therefore it will continue up)
Consider all conditions and qualifications that come to mind which conflict with, or nullify, the idea that trends will continue to run on as in the present. (Down if up, and vice versa)
Thirdly, think of motivations or circumstances that might activate trends to a greater degree than presently prevail. (e.g. that there might be a huge upsurge of greater proportions than is expected)
Your head then has to figure out which direction to take at forks in the road.
Is there any real purpose in contrary thinking
Again, the main problem people find with contrary thinking is that they use it as a forecasting tool.
It is an antidote to careless and fruitless predictions. It prevents one, if he adopts it, from trying to predict the unpredictable.
Basically, the theory merely calls for getting into the habit of asking queries, such as, ‘Support the opposite is true, then what?’ ‘Some say this and some say that; is there a third probability, presently unthought of?’ ‘The crowd is usually right during the early stages of a craze or trend but as the crowd will hang on too long, is the ‘terminal point’ close at hand?’
A Money-Mind versus the impetuous impulse to make some easy money
By money-mind I refer to the type of mental apparatus a few are endowed with that leads them as a matter of course to think of the money side in every conversation, in every endeavour or transaction engaged in. The average person, on the other hand, seldom thinks of money except, of course, when he or she is spending money or planning to spend it, or when a new job or contract is in view.
The money-minded person is constantly on the lookout for ways to make money. At the same time he is usually a well-balanced individual so he does not blast off in reckless undertakings. He thinks out the money angles: probabilities for losses as well as for profits. He considers the risks in terms of the probabilities for success.
A money-mind is a trained mind whereas impetuous impulses spring from a lack of money sense. A money-mind employs contrary opinions to guard against impetuous actions.
Opinions and words versus facts
It is of utmost importance in using the theory of contrary opinion to be contrary to words and not to facts. It is words that mislead, distort and delude.
Contrary watchfulness is required in reading statements and business releases. Obviously, businessmen are not going to put a bad face on their remarks about their company and its operations, if they can avoid it. If a businessman asserts that the earnings of his company fell sharply, it is a reflection on his administration of the business. Therefore, if he has to report poor profits you may be sure he will quickly point out that such-and-such conditions forced a loss upon his company (through no fault in management, being implied).
The next time experts appear before our television screens with brave predictions of things to come, let us not forget that they are the to persuade u to think their way.
Quick to conform, but slow to differ
A person is commonly slow to change his mind, while being quick to pounce on a new fad or shift to a new fashion. We are quick to conform and slow to differ.
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