One of the biggest stories of 2020 is the rise of the Conspiracy theory. Only it is not really this year’s story, but rather, one that goes back decades. Recent versions include Anti-Vaxxers, Global Warming Denialists, satanic pedophiles, even the Flat-Earthers.
But history buffs know conspiracists have been around for a long time: the JFK assassination was the work of the CIA or the Mafia; the Moon landing was a Hoax, the Trilateral commission controlled the global economy, and government mind rays could control your thoughts. Chemtrails, Area 51, FEMA Concentration Camps, Gun Confiscations, 9/11 as Government Plot. Go back even further and you find tropes like Blood Libel – based on a racist conspiracy theory that had real world, murderous consequences.
For investors, an endless parade of conspiracy theories exist, all serving to explain why your analysis was not really wrong and your portfolio would have outperformed but for these nefarious characters acting in the shadows. They range from secret stock purchases by the plunge protection team, to the market machinations of Goldman Sachs, and the secret repo purchases by the Federal Reserve to the conspiracies of short sellers.
To accept these theories, all you must do is ignore the inability of any of these groups to keep all of the terrible things they do secret: the accounting frauds, IPO spinning scandal, analyst research corruption, the mutual fund market timing scandal, endless leaks from BLS or the Federal Reserve. Obviously, the complete inability to maintain secrecy is a false flag meant to distract you from the even more terrible things that “they” don’t want you to learn about.
(Narrator: It isn’t).
Our mental models of the world are imperfect, but they don’t have to be flawless; they need only be good enough to allow us to survive and reproduce. Good enough is all we need for those purposes. That, of course, fails when it comes to deciding where and how to risk money in the capital markets.
How have conspiracy exerted such a grip on the American psyche? My pet theory relies on the ability of the internet to allow people with fundamentally damaged models of the world to find each other. In earlier periods, these were loners whose false belief system gained no traction.
That was before Facebook.
And not just Facebook, but Reddit, 4chan and the rest of the gathering places where like-minded people could share their motivated reasoning, without fear of professional, personal or financial consequences.
Go back to the post-war period, when everyone in the United States experienced a fairly homogeneous information flow (at least when compared to today). There were 3 national broadcast television networks; each city had a few local radio stations; most of the country had access to single local newspaper.1 Everybody watched the same movies and TV shows, listened to the same songs, rooted for their local sports teams. “Water cooler talk” was a real thing.
A few people chaffed at the uniformity of information — but they were few and far between. Except for academics, corporate and government researchers, few ever went to original source material. The resulting lack of diversity of thought led to some people wondering what they might be missing.
This was a healthy intellectual curiosity.
Outside of the mainstream media, the deepest reservoir of information and data were local libraries. Microfiche — film containing microphotographs of newspapers pages and other media — could be used to access sources across the country and around the world.
There are 116,867 libraries in America. Every town had one, every college and nearly every high school had one. If you grew up in a small town and had to go to the library often enough to do some research homework for school, you would eventually bump into “that guy” doing his “research” into some whacky idea or half-baked theory.
In other words, irrational and unsupported beliefs, motivated reasoning, and cognitive dissonance — long before that phrase even existed.
Conspiracy theories persisted, but lacked critical mass. But take that one weird dude hanging around a public library, and then connect him to the weird dude in the next town, and then the next and the next, over and over again. Pretty soon you have a few 1,000 weird dudes and then a few 100,000 weird people, all of whom can reinforce each others’ faulty belief systems, with no peer review, accountability, or any system that counters false beliefs with a penalty.
That is the beauty of markets: People who are wrong suffer a fairly immediate feedback loop, inclusive of financial losses. You can only be crazy for so long before Mr.Market either proves that you are not crazy, you are an insightful genius — or makes you broke.
The small world of homogeneous information has been replaced with an infinite universe of endless content. Some of it good, some bad, some terrible, much of it is useless. Our adversaries have weaponized social media. As the outrage industrial complex became more profitable, Truth became a casualty.
We need to be aware of what mental processes we leave on the “default factory-setting.” I suspect that one of the keys to self-awareness and of managing filter bubbles is the self-recognition of exactly what you are defaulting to — what your assumptions are, how you get information, where you do not engage in a specific process to reach a conclusion, but rather, simply rely on the sea of noise we find ourselves in.
The challenge today is not finding information, but eliminating bad info and sources. It is a critical lesson for investors — and voters.
The Unpersuadables: Your Mental Models of Investing (August 21, 2017)
Re-Engineer Your Media Diet (February 2, 2017)
Reduce the noise levels in your investment process (November 9, 2013)
More Signal, Less Noise (October 25, 2013)
Why Conspiracy Theories Are So Addictive Right Now (NYT)
Why Look at Flying Saucers? (LA Review)
1. Big cities (NY, Chicago, Los Angeles, etc.) had multiple newspapers, but these were the exceptions. Most smaller cities and small towns had one local paper.