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Investing is not about getting into trouble, but about expecting a fool to pay for you. No one wants to be this stupid, the key to investment success is to be able to accurately judge whether there is a bigger stupid than yourself, as long as you are not the biggest stupid, it is just a matter of earning more and earning less, but people who don't understand investment often become the biggest stupid. So how can you avoid being the biggest?

There is such a story:

In 1634, the Netherlands was deserted, and the whole country began to go crazy for tulips. As with all speculative bubbles, the people who participated actually made money in the first place. As prices continue to rise, you just have to buy low and sell high, and buy high and sell higher. After getting the sweetness, everyone's confidence was greatly increased, and they went bankrupt to invest more money in the tulip trade, hoping to earn more money. The original onlookers saw that it was so easy to make money, and they couldn't stand the temptation to join the team of crazy buying.

At the same time, speculators from all over Europe flocked to the Netherlands to participate in this speculative frenzy. In order to facilitate the trading of tulips, people simply opened a fixed trading market within the stock exchange in Amsterdam. Subsequently, fixed tulip trading venues were also opened in Rotterdam, Leiden and other cities.

Since 1634, tulips have been the object of speculation, and speculators have hoarded tulip bulbs in large quantities to wait for the price to rise. Under the propaganda of public opinion, people show a pathological admiration and enthusiasm for tulips. In 1636, tulips, which used to seem worthless on the surface, reached the point where they were worth as much as a carriage and several horses.

By 1637, the total increase in tulip bulbs was as high as 5900%! When one day, a foreign sailor swallowed the bulb (which a shipowner bought from the exchange for 3,000 gold coins) like an onion with smoked fiddle, the fortuitous event caused a storm. For a time, tulips became a hot potato, and no one dared to take over anymore. The price of tulip bulbs has also plummeted. In the end, the bulb cost less than 10% of the price at the peak. Those who bought tulips at a very high price were dumbfounded for a moment, and they found that these tulips, which had brought them a lot of wealth, had suddenly bankrupted their families, and many people jumped off the building for it.

Today's economists regard this tulip craze as the best example of the "biggest fool theory." By the end of 1636, any last remnants of rationality had long since moved away from the tulip market in the Netherlands. Although most people know that the price of tulip bulbs has long since moved away from their normal value, they prefer to believe that others will be more "stupid" than they are, and will willingly pay more. But in any case, the speculative frenzy cannot last forever, and it is. The end of the tulip mania finally came unexpectedly on February 4, 1637, and the biggest "fool" finally appeared.

This story is about Keynes's famous "biggest fool theory", also known as the "dumb theory".

In 1908~1914, the economist John Maynard Keynes worked hard to make money, and he once went out to give lectures to earn class fees, basically teaching any course in economics. The reason why he worked so hard to make money was so that he could focus on academic research and avoid the trouble of money, but how much money could he save just by lecturing?

Finally, Keynes began to wake up. In August 1919, Keynes borrowed a few thousand pounds sterling to invest in forward foreign exchange. Four months later, he had netted more than £10,000, which was equivalent to his earnings from lecturing for 10 years. But three months later, Keynes lost all his profits and borrowed principal. Seven months later, Keynes ventured into cotton futures trading and was a great success. Keynes did almost all the varieties of futures, and he also dabbled in stocks. By the time he was "washed his hands" due to illness in 1937, he had already accumulated a huge fortune that he could not enjoy in his lifetime. And he also left in the history of economics his famous "biggest fool theory" summarized by investment.

The purpose of investors is not to make a fool of themselves, but to expect a fool to pay for you. No one wants to be the biggest fool, the key to investment success is to be able to accurately judge whether there is a bigger fool than yourself, as long as you are not the biggest fool, it is just a matter of earning more and earning less, but people who don't understand investment often become the biggest fool. So how can you avoid being the biggest?

John Maynard Keynes once gave an example: choose the most beautiful face from 100 photos, and the winner will be rewarded. But determining which face is the prettiest is up to everyone to vote on. Think about it, if it were you, how would you vote? At this point, because everyone is involved, the right strategy for you is not to choose the face you think is the prettiest, but to guess who the majority will vote for, even if it's ugly. Here, your actions are based on speculation about the psychology of the masses, not what you really think.

Keynes said professional investing can be likened to newspaper-run contests in which readers choose six of the prettiest faces out of 100 photographs, and whoever wins the prize with the answer that is closest to the average answer that the reader as a whole can reach; Therefore, each participant has to choose not the face that he thinks is the most beautiful, but the face that he thinks will most attract the attention of the other participants, who are thinking about it in the same way.

Now it is not the really prettiest face that is determined by personal best judgment, or even the really prettiest face as the general opinion thinks. We have to make a third choice, which is to use our wisdom to anticipate the opinion of the average person and what the opinion of the average person should be...... It's not about who is the prettiest woman, it's about predicting who other people think is the most beautiful, or who other people think is the most beautiful......

This game is similar to investing, so how can you win in this game?

It's actually quite simple, first we have to guess which one most people are likely to choose, and then choose the one that everyone is most likely to like, not necessarily the one you like. In other words, the investment should be based on the premise of guessing the psychology of the majority, and if you guess the idea of the majority correctly, you will win the investment.

Speculation is based on speculation about the psychology of the masses. The same is true for real estate speculation. For example, you don't know the true value of a certain apartment, but why would you buy it for 30,000 yuan per square meter? Because you expect someone to buy it from you for a higher price.

The key to speculation is to judge "whether there is a bigger fool than yourself", as long as you are not the biggest fool, then you must be the winner, it is just a matter of winning more and winning less. If there is no bigger fool who is willing to pay a higher price to be your "next house", then you will become the biggest fool. Suffice it to say that any speculator believes in nothing more than the "biggest fool" theory. Therefore, if you want to know whether you will become the biggest fool, in addition to understanding the market situation, it is more important to have the ability to accurately judge and guess the psychology of others.