I invite you to watch an enlightening movie with me if you’re in STL on October 5th! Originally intended as an event for our firm’s clients, we decided that we wanted to share it with others and are saving a select group of seats for friends of our firm. The 88-minute documentary on the characters who changed modern finance for the better will leave you feeling smarter and more connected to the truth of successful investing. An Academy Award-winning documentarian made the film, and it is appropriately titled Tune Out the Noise. Watch the trailer and sign up here if you’d like to enjoy it with us at the spectacular Saint Louis Art Museum Farrell Auditorium.
*If you’re not in St. Louis, let us know if you’d like information on future screenings in additional cities by emailing us here.
More reasons to attend:
- Co-CEO Dave Butler will be live in attendance for a Q&A following the movie.
- This is the first film to tackle the academic, business, and practical themes connected to modern investing.
- Tune Out the Noise has yet to be publicly available.
- The Art in the film is, in many ways, its own story.
- The score is composed by the award-winning Paul Leonard-Morgan.
- During the “back to school” season, this is an excellent way to fulfill your lifelong learning commitment.
In the heart of a bustling county fair, an extraordinary experiment unfolded, showcasing the incredible power of collective intelligence. A seemingly whimsical challenge emerged: Guess the weight of a cow on display. What initially appeared as a playful game soon transformed into a stunning demonstration of the “wisdom of crowds.”
A diverse group of fairgoers, each with varying degrees of knowledge and intuition, were asked two simple questions: How much does this cow weigh? Do you have any experience with the weight of cows? The goal was to see if anyone in the crowd could guess the correct weight and if experts would be superior to the average individual.
A fascinating phenomenon began to unfold. Although individual estimates ranged wildly, the average of all these guesses astonishingly approached the actual weight of the cow. In the end, the average guess for the non-experts was 1,287 pounds compared to the actual weight of 1,355 pounds. A difference of only 68 pounds. A bigger surprise: the expert’s average guess was less accurate at 1,272 pounds, a difference of 83 pounds.
The genius of this collective average lay in its ability to filter out errors and biases inherent in individual guesses. High estimates countered low ones, and the middle-ground approximations formed a consensus that defied the odds. This experiment showcased the concept of the “wisdom of crowds” that a diverse group’s collective knowledge can outperform the insights of any individual expert.
Translating this concept to the realm of financial markets, where stocks are traded and their prices determined, demonstrates a similar effect. The market comprises countless participants, each with their own insights, analyses, and biases. When these factors converge, the resulting stock prices tend to reflect the most accurate estimate of a company’s value at a given point in time.
This phenomenon finds its backbone in the Efficient Market Hypothesis (EMH), which proposes that stock prices encapsulate all available information. Much like the cow guessing average, EMH posits that the combined insights of countless individuals lead to fair and accurate valuations, making it incredibly challenging to outguess the market consistently. Financial markets react to new information quickly, updating prices to reflect the most up-to-date information and risks fairly. Rather than trying to outguess market prices, causing turnover, high fees, and trading costs, one is better off accepting and using market prices to your advantage. Invest in global capitalism rather than trying to outguess it.
From guessing the weight of a cow to the intricate world of financial markets, the wisdom of crowds continues to shape our understanding of collective intelligence. Just as a diverse group of fairgoers could accurately estimate the cow’s weight, the multitude of participants in financial markets work together to create prices that reflect a collective estimate of a company’s value. The efficient market hypothesis stands as a testament to the power of this concept, reminding us that while individual expertise is valuable, the aggregated insights of many can often lead to more accurate and reliable outcomes. As we navigate the complexities of the modern world, embracing the wisdom of crowds can lead to better decision-making and a higher likelihood of financial success.
One of my favorite parts of my job is talking to our clients about their goals. Sometimes their objectives are specifically related to money; at other times, not as much. Either way, understanding where clients want to go (their goals) allows us to help them get there (through careful planning).
In my family’s case, one goal we have set is to see our hometown St. Louis Cardinals play in a different city each summer. This is usually my favorite yearly trip. A few weeks ago, we had an opportunity to go to Chicago to see the Cardinals play the White Sox. We spent time on Michigan Avenue, Navy Pier, and other “tourist” spots. We were also fortunate to see our Cardinals pull out a 3-0 victory.
This year’s trip was especially memorable because we combined it with visiting some of our favorite long-time clients, Larry Baumann and Dana Brehm. While not from Chicago, Larry and Dana made it their goal years ago to have a place in Chicago. After they both retired, they realized that goal and have a beautiful home there.
Numerous studies have shown that making your goals known to others increases your odds of achieving them. We love doing our part in helping clients achieve their goals. And if you aren’t tracking your goals, please let us know. We’d be happy to help.