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The Collective Brain

Stockaholics search for the best stock to choose, but end up cryin’ the Speculation Blues.

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– The Speculation Blues

Step One, courtesy of The Wolf of Wall Street, no one can predict with certainty the direction of a stock. Think about it from a purely logical perspective: is it realistic to presume that an individual investor or a stock broker can know more than the combined knowledge of ten million traders? I estimate that approximately five million sellers and five million buyers place trades each day. With each trade, a buyer and a seller both agree upon a price which represents the best estimate of a fair price. Rex Sinquefield describes the market as a vast processing machine that compiles all knowable information, much like a “collective brain.” This concept is represented in the painting to the right and articulated by Sinquefield back in 1995, at a debate on active vs. passive investing, Sinquefield put it this way: “So you can have one individual who can be very, very smart and actually know a little bit more than everyone else. But does he know more than six billion people combined? No. He knows a tiny, tiny fraction of what is knowable and what is built into prices. That’s sort of the intuition why no one’s ever going to get an edge over the market.”46 s we learned in

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