For the past month or so we have had a jelly bean jar sitting in our lobby and many of you have provided guesses for the exact number of jelly beans. While in some ways this is akin to a seventh grade science experiment, the lessons are quite interesting.
The range of guesses from low to high was almost 2000%! Guesses were from a few hundred to several thousand. The average of the three dozen guesses, however, was less than 5% away from the actual number of jelly beans in the jar (1741). Why does this matter? Well, it is a simple, yet realistic manner to demonstrate how collective wisdom is incredibly powerful and overrides what may be deep seated individual biases. All of us have these biases and should be aware of the lens through which we view the world.
No one individual (or analyst, or broker, or fortune teller) can presume to know the exact right price of a particular stock because the stream of future profits is unknown. We may have a guess, but we don’t really know. Finding the “right” price is an orderly, yet imprecise exercise. The same was true with our jelly bean jar. Everyone made a specific guess and the range was quite wide but in the end, the average of the guesses was very close to correct. This is called cognitive diversity. That is, a large diverse group (our participants ranged from financially astute clients to the copier repair person to the postman), that has varying degrees of knowledge often trumps a smaller group of “experts”.
The point is, trying to guess which direction the stock market is heading today or tomorrow or next week increases anxiety and stress. The short attached video “The Power of the Markets” points out that ”together, we know more than we do alone”. We can choose to ignore this power or utilize it towards our particular goals. Ready for a real conversation?