Groupthink

According to psysr.org ‘groupthink’ occurs “when a group makes faulty decisions because group pressures lead to a deterioration of mental efficiency, reality testing, and moral judgment”.

Groupthink = recent housing bubble in the west.

I’ve had the privilege of living in several different countries (although they were all western countries with similar cultures) and years ago became very aware of how our environment influences us.

After living outside of the US for some time I realized how patriotic Americans are. While living in France I noticed how people tend to protest everything. In Spain I got a general sense of less ambition for achievement and more interest in just getting by and taking life easy. In Germany and England people were more serious and tend to comply well with commitments and services. My point is just that we become much like those around us in our thinking, it’s unavoidable.

I was living in Spain during the rise of the housing bubble. Everyone in Spain said “Renting is wasting money”. Prices just kept going up and up, thousands and thousands of new houses built, and many building were reconstructed to make several small apartments. The mindset was “Buy at all cost no matter what. By buying you won’t throw money away and you will own an investment. Buy before it gets so expensive that you will never be able to afford your own flat…” It was like a frenzy that everyone got swept up into.

So many people could have avoided big financial problems and heartache if they could have separated themselves from Groupthink and logically analyzed the situation. I am no expert on real estate but I would always ask myself, How much does the average Spaniard make? Not very much! How much longer can the average Spaniard or person living in Spain continue to pay (or get loans) for mortgages that are well beyond their real capacity to pay?

It wasn’t rocket science, it was just common sense. Common sense is really hard to have sometimes when everyone around you is acting and thinking differently. I’ve heard over and over again that in investing it’s the the herd that always gets slaughtered.