The Psychology of Deception — Part One

The psychology of deception starts from a young age.

Children are told a jolly fat man in a red suit — transported by flying reindeer — comes down the chimney (even if you don’t have one) and gives you gifts.

And then there’s the giant rabbit with a basketful of chocolate eggs. It’s always puzzled me why a rabbit has eggs and not an oversized chicken. Allowing children’s imaginations to run wild is harmless deception. Why spoil the tradition.

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Back to today’s topic.

When we reach the adult world, the deception tends to be not so harmless.

Climate change…is it really real?

Has COVID-19 been released as part of the Great Reset…with society willingly ceding greater control to government?

Iraq’s weapons of mass destruction (WMD)…was this just a money-making exercise for the military industry?

To suggest all (or some) of the above are part of a global power play by the elites, risks being ridiculed and dismissed as a conspiracy theorist.

So, for the most part, we accept the narrative we’re told. Easier to swim with rather than against the tide.

Do I think climate change is real? No. It’s a massive con job. I wouldn’t trust Al Gore to tell me the time with my own watch.

Was COVID-19 released deliberately or accidently…I harbour suspicions.

And we know WMDs were never found in Iraq…so what was the real agenda?

Some will agree with me and others most certainly will disagree.

Who’s right?

To some extent it does not matter.

Even if my conclusions are 100% correct, what can I do about them?

I have neither the time nor energy to waste on trying to prove or disprove these deceptions.

Here at The Rum Rebellion our main aim is to provide you with information to help you make more informed choices with your finances.

Therefore, the deceptions (and lessons learned) I’d like to share with you today and tomorrow are market related.

The Roaring 20s

The Roaring Twenties was a decade of advancement. Automobiles. Telephones. Films. Radio. Electrical appliances.

Society was energised by these leaps forward in progress. Brimming confidence led to a booming share market.

Easy money was on offer. Buy this today and make a small fortune tomorrow. The market made it easy for the psychology of deception to take hold. Seeing was believing. People bought the story…they let their imaginations run wild with the possibilities.

One who wasn’t buying the market’s BS (short for Bullish Story) was Roger Babson.

Babson was an investment banker/fund manager/statistician/ economist…and a very successful investor.

The following edited extracts are from Business Insider…

Babson’s success as an investor and in running his investment research firm was, to some large degree, based on his unique (some might say unorthodox) beliefs in how markets functioned.

…during his time at M.I.T., Babson became interested in Newton’s third law and posited a theory that the business cycle was driven in part by the interplay between human participants and gravity.  

Working with M.I.T. Professor of Engineering George F. Swain, Babson applied the concept of actions and reactions to classical economics, which led to the development of the Babsonchart of Economic Indicators.

Have We Hit the Bottom? Financial Expert Warns Not Yet. Learn More.

Based on his proprietary indicators, Babson warned investors at the September 1927 annual National Business Executives Conference…

‘[T]hat the stock markets were reaching dangerous levels.

At that time, the Dow was around 200 points…doubling in value over the three previous years.

No one listened.

A year later, the Dow was up another 30%.

At the 1928 annual National Business Executives Conference, Babson warned the market was overvalued and…

‘[A] terrific correction could occur. 

No one listened.

The market surged almost another 50%…rising from 260 points to 380 points.

In September 1929, Babson’s address to the National Business Executives Conference in Massachusetts began with…

I repeat what I said at this time last year and the year before, that sooner or later a crash is coming which will take down the leading stocks…

Eventually logic (mathematics) trumps emotion, but you may have to wait longer than you think for rational thought to prevail.

In Babson’s case, his conviction in the maths was vindicated in October 1929.

The following excerpts from his 1929 address are just as true today as they were in the late 1920s.

Please read them carefully and note the strong correlation between the mindset then and now (emphasis added):

Fair weather cannot always continue. The Economic Cycle is in progress today as it was in the past. The Federal Reserve System has put the banks in a strong position, but it has not changed human nature.

More people are borrowing and speculating today than ever in our history. Sooner or later a crash is coming and it may be terrific. 

Wise are those investors who now get out of debt and reef their sails. This does not mean selling all you have, but it does mean paying up your loans and avoiding margin speculation. Sooner or later the stock market boom will collapse… Some day the time is coming when the market will begin to slide off, sellers will exceed buyers, and paper profits will begin to disappear. Then there will immediately be a stampede to save what paper profits then exist.  

Babson picked the deception early.

However, it took more than two years before the market’s trickery was exposed. In the interim, Babson’s credibility was questioned…did his mathematical modelling no longer apply?

In the midst of a boom, no one wants to be told there is no market Santa Claus or Easter Bunny. People want to be deceived. To believe in the unbelievable.

Perhaps it is different this time.

It never is.

Take note of what Babson said in his 1929 address…it is so applicable to today.

Tomorrow we look at some more recent deceptions…ones that even the best and brightest fell for.


Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.

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