In recent months, we have been exposed to a slew of events beginning with the elections in November that has put the rational brain to the test. It began with election fraud – some moron on reddit claimed there was election fraud and a ballot box was mysteriously found in Georgia with votes for Biden. Fox News faithfully reported it, President Trump echoed it, several Republicans bought into it, the moron and his friends stormed the Capitol having their nonsensical claim validated.
Automobile lobbyist groups questioned the recent statement put out by the environmental agency that the pandemic caused air pollution to drop as people drove less. They contend that the factories and fires increase air pollution and during the pandemic factories were closed and there were few fires. So, autos are not the problem.
People in India including the Prime Minister himself got caught in this circular logic spiral. Having gone through a strict lockdown and emerging out of it with very few covid cases, Indian citizens felt they have beaten the infection without needing vaccinations. The very wise Prime Minister echoed their sentiments. With the Prime Minister’s endorsement and less than 2% of the population vaccinated, Indians took to the streets and resumed mass gatherings with no masks. The country is now running short of hospital beds and oxygen as Covid cases mount everyday.
Future Wealth’s View
What do these events have to do with investments?
Circular reasoning is a logical fallacy in which the reasoner begins with what they are trying to end with. The components of a circular argument are often logically valid because if the premises are true, the conclusion must be true.
When it comes to investments, one assumes that if the stock goes up after purchase, whatever primitive method (or lack thereof) used in the process to buy the stock has to be the right one and this circular logic continues into other stock purchases until the portfolio crashes.
Let’s take the bitcoin phenomenon. With no way to value it because it is just code and there are no underlying assets, early investors took a big risk and bought bitcoin randomly. And then, Elon Musk, CEO of Tesla, endorsed bitcoin and began buying it. Now, the same investors and a host of others, having been validated by the CEO of the most valuable automobile company, are buying more bitcoin and all forms of variants of bitcoin. The fact remains that there is still no way to value bitcoin.
Methods matter. Fundamentals matter. Diligence matters.