Archetypes Are Obscuring the Understanding of Egypt

I wanted to highlight for you today one of the very real obstacles to investment success: archetypes.  To illustrate my points I want to use what is going on in Egypt as an example of how archetypes obscure, rather than illuminate, understanding.

In case you are unaware of what is an archetype, let me provide a definition.

Archetypes are generic, idealized models of persons or of concepts.  They are patterns of behavior and appearance that serve as molds for personalities and for understanding.  They typically are used in a mythic fashion.

Many people shape their lives around archetypes.  That is, they take on the various personae that archetypes imply.  Not only that, but when things in life do not unfold the way the archetypes suggest they should there is often deep emotional wounding and hurt.

Conversely, and most importantly, when life unfolds in the manner in which archetypes suggest they should there is often euphoria and ecstasy.

Let’s consider an example that will help you to understand why this is so important to understand as an investor, and as an intelligent human being.

Most of the world’s understanding of what is happening in Egypt is being filtered through two predominate, amazingly ingrained archetypes:

1. the Democratic Revolutionary
2. the Oppressive Dictator

The Democratic Revolutionary is the person whose ideals are so large that they are willing to give their life in service to those ideals.  They are certainly willing to have violence wrought upon them in order for their democratic beliefs to come to fruition.

By contrast, the Oppressive Dictator is a person who is the penultimate study in self-centeredness.  He, and he usually is a ‘he,’ is willing to murder, maim, torture, lie, cheat, and  steal in order to maintain his grip on absolute power.

We recognize both of these mythical figures and they certainly occupy a space within our subconscious.   Now there is also, and most importantly, the archetypal outcome to this whole situation, too.  The good guys, the idealistic guys, are supposed to win.  That is, the democratic revolutionaries are supposed to succeed in their quest for freedom.  That success, in archetypal terms, is called a Revolution.

In Egypt we have just had an archetypal moment where Democratic Revolutionaries have ended the reign of the Oppressive Dictator resulting in Revolution.  Not surprisingly, there is euphoria and ecstasy.  Not just for the participants, the Democratic Revolutionaries, but for anyone who was vested emotionally in that same archetype.  As citizens of the United States we are predisposed culturally, educated almost from birth, that we are Democratic Revolutionaries.  So what has happened in Egypt affirms our myth; it affirms our sense of what it means to be an American and it certainly affirms the archetype.

Yet freedom movements all over the world are routinely squelched.  In my own lifetime I have seen them squelched in China in 1989 in the notorious Tiananmen Square crackdown, and more recently in Iran in 2009.  Sometimes there is, in fact, real revolution, but often times there is not.  In other words, the outcomes of real world events do not adhere to archetypes.

What has happened in the real world Egypt, not in the archetypal Egypt?  Not much honestly.

Former President Hosni Mubarak is a man in his eighties and in failing health.  For several years he has been trying to prepare Egypt for his death or health problem induced retirement.  Mubarak’s efforts were to try and substantiate his son Gamal Mubarak for the presidency.

This choice was strongly objected to by the military establishment of Egypt, and for many reasons.  One reason is that Gamal Mubarak is not a military man.  Therefore, his allegiance to the ruling institution of Egypt was less than the military wanted.

Let’s review Egypt’s political power history going back to the last century.  Egypt was under the rule of a monarchy until Colonel Gamal Abdul Nasser led a military coup to topple the monarchy.  Nasser eventually became a civilian leader – but his power was maintained by his connection to the military establishment.

Nasser’s successor, Anwar el Sadat, was also a military man.  When Sadat was assassinated, his successor, Hosni Mubarak, was also a man of the military.  Egypt’s continuity, its secularism, its potency resides in its politics having been institutionalized by the military.

Who is in control of Egypt now?  The military.  Over the weekend you may have heard that the Egyptian military has dissolved parliament and suspended the Egyptian constitution.  Frankly, it remains to be seen if the military is truly interested in sharing its power democratically, or if it really supported the Egyptian demonstrators as a means to an end.  That end – the disposal of the Mubarak clan – was something the military had publicly been advocating for many years.

This is the real Egypt, not the archetypal Egypt.

Can you see how archetypal thinking obscures reality so that actuality is shaped into mythical fantasy?  Unfortunately, much of the “news” in investing is in the form of archetypes.  What this means is that you may be investing your hard-earned capital on a psychological phantom.

One of the predominate investment archetypes is that of the “Rocket Ship.”  The Rocket Ship is the hot growth company that has a new product that serves a new and quickly growing market.  It is primarily characterized by the world excitement.

These businesses receive lots of attention from investors in the form of an ever increasing stock price.  Price fluctuations are extremely sensitive to news – any news; as well as, attention in the form of gossip.

You know these companies well, don’t you?  If there is positive news then there is lift off in the share prices.  If there is negative news then there is melt down in the share prices.

Often Rocket Ship businesses occupy a disproportionate share of the evening business shows’ news flow.  You hear the names of these companies and of their executives, as well as the companies’ stories talked-up in coffee houses, in taxi cabs, and by your friends and relatives.

For a business to be widely gossiped about, it is a good sign that the business is a Rocket Ship.  There is a mythic quality to the story of the Rocket Ship that is similar to the fascination people have with this season’s “great sports team” or this season’s “hot celebrity.”

The problem is that the rocket ships almost always disintegrate in the atmosphere on their ascent to the heavens and fall back to earth.  The excitement surrounding the Rocket Ships causes investors to ignore obvious and pertinent data about the business that otherwise would cause them to not invest.

Think: AOL (America Online), Enron, and Cisco.  I am certain that you can think of other, more recent, examples.  The point is to have use your consciousness to understand reality and not to indulge your subconscious, archetypal fantasies.  It could be that the Rocket Ship really does deserve to cruise up in the stratosphere.

Importantly, there are many other investment archetypes to consider.  I will share some of them with you in the future.  But for now, if you want to spot some of the other investment archetypes, I encourage you to pay attention to the news you consume and scrutinize the nouns.  That’s right, the nouns.

News writers bandy about nouns willy nilly because it is assumed that there is a shared understanding of the noun – so no explanation is necessary.  For example, in a different context, the “perpetual bachelor” is a noun to pay attention to.  Can the complexities of a human being really be summarized in a single noun?  Of course not.  But then, so too, companies cannot be summarized with a single noun either.

Jason