“It was the facts that changed my mind.” —Julian Simon1
During the 1990s, we watched the Dow Jones Industrial Average increase fourfold and Nasdaq stocks tenfold. Yet there were well-known investment advisers—some of them my friends—who were bearish during the entire period, missing out on the greatest bull market in history.2
How is this possible? What kind of prejudices would keep an intelligent analyst from missing an overwhelming trend? In the financial business the key to success is a willingness to change your mind when you’re wrong. Stubbornness can be financially ruinous. When a market goes against you, you should always ask, “What am I missing?”
Over the years, I’ve encountered three kinds of investment analysts: those who are always bullish; those who are always bearish; and those whose outlook depends on market conditions. I’ve found that the third type, the most flexible, are the most successful on Wall Street.
Confessions of a Gold-Bug Technician
A good friend of mine is a technical analyst who searches the movement of prices, volume, and other technical indicators to determine the direction of stocks and commodities. Most financial technicians are free of prejudices and will invest their money wherever they see a positive upward trend, and avoid (or sell short) markets that are seen in a downward trend. But my friend is a gold bug and no matter what the charts show, he somehow interprets them to suggest that gold is ready to reverse its downward trend and head back up. Equally, he always seems to think the stock market has peaked and is headed south. As a result, throughout the entire 1990s, he missed out on the great bull market on Wall Street and lost his shirt chasing gold stocks.
I also see this type of prejudice in the academic world. Some analysts are anti-market no matter what. Take, for example, Lester Brown, president of the Worldwatch Institute in Washington, D.C., who puts out the annual State of the World and other alarmist surveys and data. He gathers together all kinds of statistics and graphs showing a decline in our standard of living and the growing threat of population growth, environmental degradation, the spread of the AIDS virus, and so on. For example, despite clear evidence of sharply lower fertility rates in most nations, Brown concludes, “stabilizing population may be the most difficult challenge of all.”3
Too bad Julian Simon, the late professor of economics at the University of Maryland, is no longer around to dispute Brown and the environmental doomsdayers. Simon was as optimistic about the world as Brown is pessimistic. Simon’s last survey of world economic conditions, The State of Humanity, was published in 1995. That book, along with his The Ultimate Resource (and its second edition), came to the exact opposite of Brown’s conclusions. “Our species is better off in just about every measurable material way.”4
Yet Julian Simon was not simply a Pollyanna optimist. He let the facts affect his thinking. In the 1960s, Simon was deeply worried about population and nuclear war, just like Lester Brown, Paul Ehrlich, and their colleagues. But Simon changed his mind after investigating and discovering that “the available empirical data did not support that theory.”5
Scholars Who See the Light
The best scholars are those willing to change their minds after looking at the data or discovering a new principle. They admit their mistakes when they have been proven wrong. You don’t see it happen often, though. Once a scholar has built a reputation around a certain point of view and has published books and articles on his pet theory, it’s almost impossible to recant. This propensity applies to scholars across the political spectrum.
We admire those rare intellectuals who are honest enough to admit that their past views were wrong. For example, when New York historian Richard Gid Powers began his history of the anticommunist movement, his attitude was pejorative. He had previously written a highly negative book on J. Edgar Hoover, Secrecy and Power. Yet after several years of painstaking research, he changed his mind: “Writing this book radically altered my view of American anticommunism. I began with the idea that anticommunism displayed America at its worst, but I came to see in anti-communism America at its best.”6 That’s my kind of scholar.
- Julian L. Simon, The Ultimate Resource 2 (Princeton, N.J.: Princeton University Press, 1996), preface.
- See the revealing article, “Down and Out on Wall Street,” New York Times, Money & Business Section, Sunday, December 26, 1999.
- Lester R. Brown, Gary Gardner, and Brian Halweil, Beyond Malthus (New York: Norton, 1999), p. 30.
- Julian L. Simon, The State of Humanity (Cambridge, Mass.: Blackwell, 1995), p. 1.
- Simon, The Ultimate Resource 2, preface.
- Richard Gid Powers, Not Without Honor: The History of American Anticommunism (Free Press, 1996), p. 503.