Why the Consensus Is Usually Wrong at Extremes

The consensus is not wrong most of the time. It is wrong at precisely the moments that matter most — at market peaks and market bottoms — and wrong in a way that is both predictable and exploitable.

Why This Matters

Consensus views in financial markets form through a process of social information aggregation that works well under normal conditions but breaks down at extremes. At peaks, fear of being left behind overwhelms fundamental analysis. At bottoms, fear of further loss overwhelms the recognition of value. In both cases, the consensus view — however confidently held and however widely cited — has stopped reflecting economic reality and started reflecting collective emotional state.