Is it wise to be different?

We all know the answer to this question, which is it depends. Sometimes being different is merely being stupid, while sometimes being different makes you a genius. We know there are certain circumstances when we want to be different if possible and today I want to talk about one such circumstance. When a bubble is about to burst, people want to act differently just right before the bubble bursts, so they can maximise their returns and avoid losses caused by the bubble burst. However, this is extremely difficult and people may only act based on their luck. There is one interesting factor that it seems those advisers from the major financial institutions are generally not smart when they face a bubble, they often provide similar investment strategies for their clients and in some ways help the bubble to grow bigger. Why do they provide similar investment strategies? Why don't they act differently and be the smart ones?

These advisers from the large institutions are of course smart in general; otherwise, they will not have their positions in these institutions. Many of them graduated from top universities so their intellectual abilities should not be doubted. In my opinion, because they are smart, they do not act differently. As a big institution, being different is very risky while being similar is almost risk-free. When investors come to these large institutions, they want to receive more complete information and better analysis and advice. If all other institutions provide the same analysis and advice and one institution provide something different, then the investors are less likely doubt the advice given by the majority of the industry, they are much more likely to doubt the advice given by this different one. Moreover, being difficult is more likely to make a mistake, because being different from most large institutions means being different from the market expectation. Acting against the market expectation is going to make a loss, and the only chance of making profits is there is a shift in the market expectation in the very near future. Waiting too long is a problem in investment because when acting against the market expectation, it means paying premiums every day to maintain the position level, and it is possible to wait too long to see the shift before being bankrupt. In addition, investors are loss averse, waiting for the shift is painful, every day their doubts will increase when they are suffering losses every day before the shift finally comes. It is likely to see the shift comes later than the adviser who give a different opinion gets fired.

However, on the other hand, as long as being the same as other large players, it is risk-free. First, investors will have nothing to complain about, as they are receiving correct information about the market expectation. Secondly, if there is anything wrong, since the entire industry gets it wrong, it is just a bad luck. Thirdly, it is too big to fail. If the entire industry gets wrong, the government has to step in and rescue the failed institutions, especially those big ones.

To conclude, it is simply not wise for large institutions to be different from their large peers.