Page 149 - (DK) The Business Book

MAKING MONEY WORK 14 7
147
See also: Stand out in the market 28–31 ■ Gaining an edge 32–39 ■ Beware the yes-men 74–75 ■ Thinking outside the
box 88–89 ■ Avoid groupthink 114 ■ Protect the core business 170–71 ■ Forecasting 278–79

Companies follow herd instincts when they…

…stampede to buy …buy other businesses
…develop “me too”
shares in high-trend because of a current products rather than
businesses, or buy them market trend in follow logical strategy.
completely. diversification.

These actions are unlikely to be financially beneficial.

Swim upstream. Go the other way.
Ignore the conventional wisdom.

assets have dropped in value. They An example of the risks of following shares. And by February 2001, the
often suffer serious losses. A the herd came with the dot-com share price had fallen to 9 cents.
contrarian investor—or a savvy bubble, between 1998 and 1999. A little later the business was
company that holds a portfolio of Among numerous examples of declared bankrupt. ❯❯
investments—does the opposite. extraordinary share-price gains
When share prices rise and new followed by equally huge losses,
investors are attracted into the was the business eToys.com,
market, they sell, and if the market which was opened in 1997. In May
slumps, they buy. However, few 1999 it was launched onto the New
investors show the foresight required York Stock Exchange at $20 per The herd instinct among
to know when a boom is turning to share, raising $166 million. Buyers forecasters makes sheep look
bust. Warren Buffet, a legendary piled in, pushing the price up to like independent thinkers.
investor, says: “We simply attempt $76 by the end of the first day. By Edgar R. Fielder
to be fearful when others are greedy fall 1999, the share price was $84,
US economist (1930–2003)
and to be greedy only when others giving the business a higher
are fearful.” Between 1965 and 2013, market value than the retail giant
Buffet’s investment company gave Toys R Us. As the market turned
investors a capital gain of more downward, the experts started to
than 900,000 percent. sell, leaving the herd with the