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The Wisdom of Crowds

Mike Earl, CFP®, CPWA®


With this year’s election just a month away, the temptation to [attempt to] time the market is as strong as ever. Our clients and friends are asking, “how will the stock market react to the election?” The dull (but correct) answer is that we cannot predict who will win the election, and we certainly cannot predict how the market will react to it – in the short-term.

But if you’re like me, you want a more intellectually satisfying rationale for staying invested in your current asset allocation (i.e. ratio of stocks to bonds).

Enter the jelly bean experiment. You’ve probably participated in the “guess how many jelly beans are in the jar” game at some point in the past. Most of us know it’s incredibly difficult for any one of us to make an accurate guess.


Giant Jar of Jelly Beans (3 litres) - SweetsDirect.co.za

Economist Jack Treynor ran this experiment back in 1987 with a jar that held 850 jelly beans. He had 56 students guess how many jelly beans were in the jar. The average of all the students’ guesses came to 871 – remarkably close to the correct answer of 850.

That group estimate was better than 98% of the individual guesses made by students. Only 1 student out of 56 had a guess that was better than the pooled answer! The pooled intelligence of the group was off by just 2.5%.

Turning back to global stock and bond markets, can any single person consistently outsmart the collective intelligence of tens of millions of market participants around the globe? The answer is no.  

This actually brings me great comfort as an investor. I don’t need to predict the future. The collective mind of the market (I know this sounds a bit like science fiction) is attempting to price in all available data at any given time. My personal thoughts and intuitions about the short-term direction of the market are most likely going to be wrong, and that’s okay—I have an investment plan, and I will focus on what I can control.

Our clients know we have a disciplined, repeatable process for managing their portfolios. We retain ample funds in conservative investments (bonds) to meet liquidity needs for multiple years into the future. That way, we are never forced to sell stocks at an inopportune time.

Today, as always, our advice remains to stay the course.



  1. http://wisdomofcrowds.blogspot.com/2009/12/chapter-one-part-i.html

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