The five laws of stupid investing

Most people think markets are moved by data. By quarterly numbers, GDP projections, or interest rate decisions. But more often than not, they are moved by people and people are wonderfully, reliably irrational. You don't need a finance degree to understand the market. You need an understanding of human behaviour. And no one captured this better than Carlo Cipolla, an economic historian, in his book 'The Basic Laws of Human Stupidity'. What started as a tongue-in-cheek essay now reads like an operating manual for modern investing. His five laws, originally written about society, map perfectly onto financial markets. Especially if you have ever wondered why seemingly smart people make terrible decisions or why the crowd so often moves in the wrong direction. Let's walk through each of these laws and what they reveal about how to think and invest with clarity. The first law of stupidity What Cipolla says: Always and inevitably, everyone underestimates the number of stupid individuals in circulation. Investing corollary: We always underestimate how many stupid investors are out there. Every time I think we have hit peak irrationality, the market surprises me. The mistake most investors make is assuming others are thinking clearly. That there is some grand wisdom in price movements. But every cycle proves otherwise. You will see

This article was originally published on April 01, 2025.