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THINKING FOR YOURSELF

No matter how reputable the source, an investor should consider arguments on their own merit. An investor should not just go with the consensus opinion.

Bill Ackman made a controversial but well argued and convincing case that MBIA was based on an unsustainable and flawed business model. The case was presented to analysts, regulators, ratings agencies, and the news media. Many of these people were absorbed in the status quo, were not incentivized to pursue the matter, or relied on other people's opinions without properly evaluating the merits of the arguments for themselves.

In some ways, this is like the 'Emperor's New Clothes', where the king relied too much on his advisor to tell him he looked splendid in his new clothes, without evaluating the situation for himself.





They were overly influenced by the reputation and opinions from reputable sources. With a Triple-A rating, the company in question was practically above reproach. By comparison, Ackman was seen as a 'villian', due to the reputation around short selling and credit default swaps. These should not have played a role in determining the merit of the arguments. The arguments should stand on their own.