If the reader interjects that there must surely be large profits
to be gained from the other players in the long run by a skilled
individual who, unperturbed by the prevailing pastime, continues to
purchase investments on the best genuine long-term expectations he
can frame, he must be answered, first of all, that there are,
indeed, such serious-minded individuals and that it makes a vast
difference to an investment market whether or not they predominate
in their influence over the game-players. But we must also add that
there are several factors which jeopardise the predominance of such
individuals in modern investment markets. Investment based on
genuine long-term expectation is so difficult to-day as to be
scarcely practicable. He who attempts it must surely lead much more
laborious days and run greater risks than he who tries to guess
better than the crowd how thc crowd will behave; and, given equal
intelligence, he may make more disastrous mistakes. There is no
clear evidence from experience that the investment policy which is
socially advantageous coincides with that which is most profitable.
It needs more intelligence to defeat the forces of time and our
ignorance of the future than to beat the gun. Moreover, life is not
long enough - human nature desires quick results, there is a
peculiar zest in making money quickly, and remoter gains are
discounted by the average man at a very high rate. The game of
professional investment is intolerably boring and over-exacting to
anyone who is entirely exempt from the gambling instinct; whilst he
who has it must pay to this propensity the appropriate toll.
Furthermore, an investor who proposes to ignore near-term market
fluctuations needs greater resources for safety and must not
operate on so large a scale, if at all, with borrowed money - a
further reason for the higher return from the pastime to a given
stock of intelligence and resources. Finally it is the long-term
investor, he who most promotes the public interest, who will in
practice come in for most criticism, wherever investment funds are
managed by committees or boards or banks. For it is in the essence
of his behaviour that he should be eccentric, unconventional and
rash in the eyes of average opinion. If he is successful, that will
only confirm the general belief in his rashness; and if in the
short run he is unsuccessful, which is very likely, he will not
receive much mercy. Worldly wisdom teaches that it is better for
reputation to fail conventionally than to succeed
unconventionally.
(5) So far we have had chiefly in mind the state of confidence of the speculator or speculative investor himself and may have seemed to be tacitly assuming that, if he himself is satisfied with the prospects, he has unlimited command over money at the market rate of interest. This is, of course, not the case. Thus we must also take account of the other facet of the state of confidence, namely, the confidence of the lending institutions towards those who seek to borrow from them, sometimes described as the state of credit. A collapse in the price of equities, which has had disastrous reactions on the marginal efficiency of capital, may have been due to the weakening either of speculative confidence or of the state of credit. But whereas the weakening of either is enough to cause a collapse, recovery requires the revival of both. For whilst the weakening of credit is sufficient to bring about a collapse, its strengthening, though a necessary condition of recovery, is not a sufficient condition.