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Saturday, January 10, 2026

Investing Notes to Myself

Investing Notes to Myself

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1) Wager Value

Money is made in the dark, not the light.

Stephen Goddard, The London Company
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Back in the eighties I use to go to the racetrack to bet on Thoroughbred Racehorses. It was a good training ground for investing in the stock market. I came across a term by handicapping author,  James Cramer. He called it Wager Value.  Essentially it meant focusing on information that other handicappers weren’t using. Whereas most people who went to the track used speed ratings and the horse’s current form shown in the past performance tables, Cramer like Stephen Davidowitz before him, focused on trainer patterns, track bias and result charts. He reasoned that if he based his handicapping (estimating probabilities) on underused information, the horses he would come up with would help provide him with more attractive odds. So he might estimate a horse’s chances of winning to be 3-1 while the tote board (based on everybody else opinion) would have the same horse going off at 8-1. This is the very heart of handicapping a horse race, betting on the horse who has the best chance of winning relative to his odds.

Applying the concept of ‘Wager Value’ to the stock market you would want to focus on the inefficient areas of the market. Small and Mid capitalization stocks tend to be a major source of inefficiency in the stock market. Most mutual funds and institutions want to increase their assets under management so they can grow their businesses and get bigger. Most of them get so big that they price themselves out of the smaller cap world. The small and mid caps end up being too illiquid for the giant institutions to bother with so they are forced to move up the food chain to the large caps. This means there are less people buying the small/mid caps and fewer analysts following them. This makes them prone to being mispriced. The small/mid cap world is an ideal environment for the small do-it-yourself investor who is far more nimble and quick than his huge institutional counterparts. Of course small/mid caps can introduce additional risks as well. They tend to more unstable then the large caps. Small caps often have just one or two products lines and a smaller customer base. They can be overly dependent on a few key individuals in the executive suite. So you have to be careful. These risks can be mitigated by concentrating on companies that are serving a potentially big market and that actually have growing revenues, cash flow and earnings. You also like to see management own a good portion of their own stock. If it's run by a founder CEO, even better. It’s an attractive area to explore and their financial statements can be easier to read as well, and its great fun and after all that’s all part of the game.

In my own portfolio I hold some large and mid cap names, while holding some small caps as well. I run sort of a barbell approach in my own investment portfolio. It’s all a matter of taste. You might want to have just a few of the smaller cap names in your portfolio or hold many and maybe have a larger cash position, it’s up to you.

Great patience is often needed as small caps especially, can be out of favor for long periods of time and in this day of the internet can be the subject of bear raids so it’s important to be familiar with the underlying fundamentals of the company. You don't want to be shook out of your position. There are some great small cap mutual funds out there where you can get some unique investing ideas in this area. 

The small do-it-yourself investor gives up a huge advantage to the financial establishment in ignoring this area. Remember when investing you have to have some sort of edge over your competition and the small to mid cap area is a great place to exercise it. And Canada is basically a small to mid cap market and an ideal place to go hunting for under followed names.
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2) Margin of Safety 

What is it that makes outcomes tolerable even when the future doesn't live up to your expectations? The answer is margin of safety.

Howard Marks, The Most Important thing

The Margin of Safety (MOS) is the difference between a stock's intrinsic value (what the company is truly worth) and its current market price.

In simple terms, it's a principle of buying a stock at a price significantly below your estimate of its true value.

Here's a breakdown of what it means and why it's so important:

Core Concept: The Protective Cushion

The Margin of Safety acts as a protective cushion or buffer for the investor. This idea was popularized by Benjamin Graham, the father of value investing and mentor to Warren Buffett.

  • Protection against Errors: No valuation model is perfect, and human judgment can be flawed. The MOS provides room for error in your intrinsic value calculation. If you were wrong and the company is only worth 15% less than your estimate, a 40% MOS ensures you still bought at a discount.

  • Protection against Market Volatility: It minimizes your risk of capital loss during market downturns, bad luck, or unforeseen corporate challenges. When the market price drops, you are protected because you bought the stock for a price that already had a significant discount built-in.

  • Maximizing Returns: When the market eventually recognizes the stock's true value, the price is expected to rise from the discounted purchase price to the intrinsic value, providing a higher potential return.

A wide Margin of Safety is the central principle for value investors. It means:

Never pay full price. Always buy assets for significantly less than their worth. (As Warren Buffett famously said, "You leave yourself an enormous margin. When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it.")

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3) Buy and Hold

Investment is a process in time.

Hyman Minsky

'Buy and hold' is a long-term, passive investment strategy where an investor:

  1. Buys a financial asset (like stocks, bonds, or mutual funds) based on the belief in its long-term growth potential.

  2. Holds that asset for an extended period—often many years or even decades—regardless of short-term market fluctuations or volatility.

Key Principles of Buy and Hold:

  • Long-Term Focus: The strategy relies on the historical tendency of the overall market (or a fundamentally sound company) to grow over long periods.

  • Ignoring Short-Term Noise: The investor deliberately ignores daily or monthly price swings, resisting the urge to sell during market downturns (panic selling) or buy into temporary speculative bubbles (chasing returns).

  • Time in the Market, Not Timing the Market: It emphasizes that consistently staying invested over a long time is more effective than trying to predict when the market will peak or bottom.

  • Benefits of Compounding: The strategy maximizes the effect of compounding, where the returns on your investment are reinvested to generate their own returns over many years, creating exponential growth.

  • Lower Costs and Taxes: Fewer trades mean lower transaction costs (brokerage fees/commissions). In many jurisdictions, holding an asset for over a year qualifies for lower long-term capital gains tax rates, which is a significant advantage.

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4) Concentrated Portfolio

The strategy we've adopted precludes our following the standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by conventional investors. We disagree. We believe that a policy of concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying it.

Warren buffet

Since we're familiar with the underlying fundamentals of the company we've invested in, and are judgements are based on hidden or neglected information, it only makes sense to concentrate your holdings on your best ideas. Why diversify your edge away? As Marty Whitman and Charlie Munger both said, "diversification is a hedge for ignorance."

Joel Greenblatt too observed, as the number of stocks in the portfolio increases, the benefits of diversification drop quickly. In other words know what you own and pick your spots. Put your money into your best ideas and learn to think for yourself. Ten stocks in your investment portfolio are enough if you have good well-thought reasons for investing in them and you spread them out between different industries. Yes, it may be volatile, but volatility is not risk, it's noise. The longer you hold your positions the more the risk will go out of them. A better way to approach diversification is by putting money into low-risk investing instruments (cash, T-bills). Sort of a barbell approach. 

In my own investing, I run an unbalanced as well as a concentrated portfolio. I put most of my money into my best ideas. It's all a matter of taste. The longer you are in the market, your investing style will gradually emerge over time. The market not only teaches you how to invest in stocks, but it will teach you about yourself as well.
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5) Be a Contrarian

If everyone's doing them, there must be something wrong with them.

Henry Singleton

Don't do the obvious thing. Because if it's obvious, it's already a crowded trade. A crowd yields to instincts that an individual, acting alone, represses. The crowd instinctively  follow the impulses of the herd. An individual who becomes involved in a group becomes less capable of thinking for himself. In a crowd every sentiment and act is contagious, and contagious to such a degree that an individual readily sacrifices his ability to think for himself and to stay dispassionate about his investments. He gets emotionally swept away with the crowd and soon finds himself lost and out to sea.

Market extremes represent inflection points. These occur when bullishness or bearishness reaches a maximum. Figuratively speaking, a top occurs when the last person who will become a buyer does so. Since every buyer has joined the bullish herd by the time the top is reached, bullishness can go no further and the market is as high as it can go.

There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Superior investing, as I hope I’ve convinced you by now, requires second-level thinking—a way of thinking that’s different from that of others, more complex and more insightful. By definition, most of the crowd can’t share it. Thus, the judgments of the crowd can’t hold the key to success. Rather, the trend, the consensus view, is something to game against, and the consensus portfolio is one to diverge from. As the pendulum swings or the market goes through its cycles, the key to ultimate success lies in doing the opposite.

Howard Marks, The Most Important Thing

And above all, at times of extreme emotion in the market...Be Contrary.
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Thursday, January 1, 2026

Stockwatch...Northwest Healthcare Properties REIT (TSX: NWH.UN)

Stockwatch...Northwest Healthcare Properties REIT (TSX: NWH.UN) 

"The most valuable commodity I know of is information."

Gordon Gekko

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The investing thesis for Northwest Healthcare Properties REIT (TSX: NWH.UN) has evolved from an "aggressive global growth" story to a "deleveraging and simplification" turnaround play.

Historically known for its rapid expansion into international markets like Brazil, Australia, and Europe, the REIT faced a liquidity crunch in 2023 due to rising interest rates and high debt levels. As of late 2025, the investment thesis is centered on the success of its strategic restructuring.


1. The Core Bull Case: Defensive Assets & High Yield

The foundational appeal of Northwest remains its "infrastructure-like" asset class:

  • Recession-Resistant Tenants: Most revenue comes from hospitals and medical office buildings. Tenants are typically major healthcare systems with government-backed funding, making them extremely stable even in economic downturns.

  • Long-Term Lease Profile: The REIT maintains a Weighted Average Lease Expiry (WALE) of ~13.4 years, one of the longest in the Canadian REIT sector.

  • Inflation Protection: Roughly 80% of its leases are indexed to inflation (CPI), allowing the REIT to pass through rising costs to tenants automatically.

2. The Turnaround Thesis: Simplification & Deleveraging

Investors are currently betting on the REIT’s ability to "shrink to grow." Key pillars include:

  • Asset Dispositions: Northwest has sold billions in non-core assets (notably its UK portfolio) to pay down expensive debt. It has successfully reduced its leverage from over 50% toward its target range in the mid-40s.

  • Repatriating Capital: Under CEO Zach Vaughan, the REIT is shifting focus away from complex international joint ventures and back toward core North American assets.

  • Normalized Payouts: After a significant dividend cut in 2023 (from $0.067 to $0.03 per month), the AFFO Payout Ratio has stabilized at around 85%. This makes the current yield (~7%) much more sustainable than the previous double-digit yield.

3. Key Risks (The "Bear" Case)

  • High Leverage: Despite progress, Northwest still carries a higher debt-to-gross book value than many of its Canadian peers.

  • Interest Rate Sensitivity: Because it uses significant property-level financing, prolonged high interest rates increase the cost of refinancing expiring debt.

  • Complexity Discount: Operating across four continents involves foreign exchange risk and complex tax structures, which often leads the market to trade it at a discount compared to pure-play North American REITs.


Financial Summary (As of late 2025)

MetricValue (approx.)
Annualized Dividend$0.36 per unit (~7.1% yield)
Occupancy~97%
Price / NAVOften trades at a 15–30% discount to Net Asset Value
SPNOI GrowthConsistently positive (~3–4% year-over-year)

Summary for Investors

The thesis is that Northwest is deeply undervalued because the market is still punishing it for past management missteps. If they continue to successfully sell non-core assets and lower their debt, the gap between the unit price and the underlying value of their high-quality medical hospitals should narrow.

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Senior Management Changes

The senior management team at Northwest Healthcare Properties REIT (TSX: NWH.UN) has undergone a significant transformation recently. Following the exit of the company's founder, Paul Dalla Lana, the new leadership is focused on professionalizing operations and fixing the balance sheet.

Here is an overview of the key executives leading the REIT today:

Key Executive Leadership

  • Zachary (Zach) Vaughan – Chief Executive Officer (Appointed July 2, 2025): A high-profile hire from Brookfield, where he was a Managing Partner and CEO of Brookfield REIT. Vaughan is a seasoned real estate veteran with deep experience in international markets and complex portfolio restructurings. His appointment is seen as a signal to the market that Northwest is moving toward a more disciplined, institutional-grade management style.

  • Michael Brady – President: Formerly the REIT’s Chief Operating Officer and General Counsel, Brady was promoted to President during the leadership transition. He has been instrumental in executing the REIT’s "disposition strategy," including the multi-billion-dollar sale of assets in the UK and Australia to reduce debt.

  • Stephanie Karamarkovic – Chief Financial Officer: Appointed in early 2024 (initially as interim, then permanent), she replaced the previous CFO during the company’s liquidity crunch. Her focus has been on "simplifying" the REIT’s capital structure and reducing its interest expense through debt refinancing and repayments.

  • Tracey Whittall – Chief Operating Officer: Manages the day-to-day global operations across North America, Brazil, Europe, and Australasia. Her role is critical in maintaining the REIT’s high occupancy levels (~97%) and ensuring that the portfolio’s inflation-indexed leases are managed effectively.


Strategic Shift in Governance

The management team’s culture has shifted notably away from the "growth at all costs" mindset of the previous era.

  • Internalization of Management: In late 2025, the team completed the internalization of management for Vital Healthcare Property Trust (its Australian/New Zealand arm). This move simplified the corporate structure and provided a cash influx of roughly $170 million for debt reduction.

  • Renewed Board Oversight: The Board of Trustees was also refreshed, with Robert Julien taking over as Chair in May 2025. The board now includes more independent trustees with specialized backgrounds in audit and governance to provide stricter oversight of management decisions.

What This Means for Investors

The "new" Northwest management is generally viewed as more conservative and transparent. While the previous management was praised for building a world-class portfolio, they were criticized for taking on too much debt. The current team's "investing thesis" is essentially a commitment to fiscal responsibility and operational efficiency.

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The New CEO, Zachary (Zach) Vaughan

Zachary (Zach) Vaughan officially took the helm as the Chief Executive Officer of Northwest Healthcare Properties REIT on July 2, 2025. His appointment followed a period of strategic turbulence for the REIT and signaled a major shift toward operational simplification and debt reduction.

Vaughan is a highly regarded real estate executive with over 20 years of experience, particularly known for his long tenure at Brookfield Asset Management.

Professional Background

Before joining Northwest, Vaughan built a reputation as a global leader in real estate investment and asset management:

  • Brookfield Asset Management: He spent a significant portion of his career here, serving as Managing Partner and Head of European Real Estate. Most notably, he was the CEO of Brookfield REIT, where he oversaw massive global portfolios and complex capital structures.

  • Arrow Global: Immediately prior to Northwest, he was the Global Head and CIO of Real Estate at Arrow Global, a leading European investment firm.

  • CPPIB & Reichmann International: Earlier in his career, he held senior roles at the Canada Pension Plan Investment Board (CPPIB) and International Property Corp/Reichmann International.

  • Education: He holds an Honours Bachelor of Economics from Western University.7


Strategic Mandate at Northwest

Vaughan’s primary mission is to stabilize the REIT after a challenging period characterized by high debt and a complex global footprint. His strategy, often described as a "back to basics" approach, focuses on three pillars:

1. Operational Simplification

Vaughan is moving the REIT away from being a "global aggregator" toward a more focused operator. This includes:

  • Regional Focus: Prioritizing core markets in North America (Canada and the U.S.) and Australia, while looking to exit more fragmented European markets like Germany and the Netherlands.

  • Management Internalization: In late 2025, he oversaw the internalization of management for Vital Healthcare Property Trust in New Zealand, a move that simplified the corporate structure and provided Northwest with approximately 9$170 million (NZ$214 million) in cash.

2. Debt Reduction & Deleveraging

Under his leadership, Northwest has aggressively sold non-core assets to pay down debt. By Q2 2025, leverage had dropped to 48.5%, and the REIT has successfully lowered its borrowing costs by amending revolving credit facilities.

3. Growth in "Local" Healthcare

Vaughan views healthcare as a hyper-local business. He is focused on the trend of moving elective surgeries out of large hospitals into specialized outpatient facilities (like medical office buildings and ambulatory care centers), which offer better margins and long-term stability.


Key Performance Indicators (as of late 2025)

MetricStatus Under Vaughan
OccupancyStable at approximately 96.9%
Asset Sales~$1.6 billion sold over 18 months to shore up the balance sheet
ProfitabilityReturned to profitability in 2025 after a net loss in 2024
DividendFocused on a sustainable payout ratio (approx. 88% AFFO as of Q2 2025)

Vaughan has described this current phase as a "prove it" moment for the REIT, aiming to rebuild investor trust by delivering consistent, recession-resistant cash flows from their $8.4 billion portfolio.

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Source

Google Gemini


Tuesday, December 30, 2025

The Crowd: A Study of the Popular Mind – Gustave Le Bon

The Crowd: A Study of the Popular Mind – Gustave Le Bon

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In one of the best known books on mass psychology, LeBron (1982) wrote that when people gather in a crowd, 

“Whoever be the individuals that compose it, however like or unlike be their mode of life, their occupations, their character, or their intelligence, the fact that they have been transformed into a crowd puts them in possession of a sort of collective mind which makes them feel, think, and act in a manner quite different from that in which each individual of them would feel, think, and act were he in a state of isolation.” 

His expose gives deep insight into the understanding of behavioural patterns of the market crowd and the individual trader. People change when they join crowds. They become more credulous and impulsive, anxiously search for a leader, and react to emotions instead of using their intellect. An individual who becomes involved in a group becomes less capable of thinking for himself

A Review of the Psychology of the Capital Market in an Emerging Economy,

E. Chuke Nwude 

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The nature of crowds has long been a topic of interest in philosophy. However, the 18th and 19th centuries were a time when an increased emphasis was placed on understanding the psychology of crowds. For example,  the 18th century philosopher Jean Jacques Rousseau proclaimed that  “…we have a very imperfect knowledge of the human heart if we do not also examine it in crowds.”

Gustave Le Bon (1841-1931), a French social psychologist, is often seen as the father of the study of crowd psychology. Le Bon believed an understanding of crowd psychology was essential for a proper understating of the both history and the nature of man. As he wrote in his classic and highly influential work The Crowd: A Study of the Popular Mind: 

“It is crowds rather than isolated individuals that may be induced to run the risk of death to secure the triumph of a creed or an idea, that may be fired with enthusiasm for glory and honour… Such heroism is without doubt somewhat unconscious, but it is of such heroism that history is made.”(The Crowd: A Study of the Popular Mind – Gustave Le Bon)

In this article we will provide a summary of Le Bon’s classic work. In particular, we will investigate his insights into the nature of crowds, look at the role ideas play in influencing crowds, examine the  religious sentiment of crowds, and discuss  the psychological and emotional benefits one derives from joining a crowd.

What is a crowd? Le Bon defined a crowd as a  group of individuals united by a common idea, belief, or ideology.

The idea which unites a crowd is not chosen by a process of clear reasoning and examination of evidence. Instead, as we will discuss in more detail later, crowds accept beliefs and ideas superficially and utilize them as fuel for revolutionary action.

When an individual becomes part of a crowd, according to Le Bon, he undergoes a profound psychological transformation. That is, he  ceases to operate as an individual: 

“He is no longer himself, but has become an automaton who has ceased to be guided by his will.” (The Crowd: A Study of the Popular Mind – Gustave Le Bon)

With such a psychological transformation, an individual no longer lives for himself, but instead becomes a pawn who sacrifices his own personal ends and goals in favour of those of the crowd:

“In a crowd every sentiment and act is contagious, and contagious to such a degree that an individual readily sacrifices his personal interest to the collective interest.” (The Crowd: A Study of the Popular Mind – Gustave Le Bon)

As was mentioned earlier, Le Bon maintained that a crowd forms when an  influential idea unites a number of individuals and propels them to act towards a common goal. These influential ideas, however, are never created by members of the crowd. Instead,  they are brought into the world by the minds of great individuals.

Since those who compose a crowd are by their very nature mediocrethey are incapable of understanding these ideas in their  original form. Therefore, in order for an idea to unite and influence a crowd,  it must first be thoroughly simplified:

“Ideas being only accessible to crowds after having assumed a very simple shape must often undergo the most thoroughgoing transformations to become popular. It is especially when we are dealing with somewhat lofty philosophical or scientific ideas that we see how far-reaching are the modifications they require in order to lower them to the level of the intelligence of crowds…. However great or true an idea may have been to begin with, it is deprived of almost all that which constituted its elevation and its greatness by the mere fact that it has come within the intellectual range of crowds and exerts an influence upon them.” (The Crowd: A Study of the Popular Mind – Gustave Le Bon)

For example, a great philosopher could extol  the nature of liberty in an 800 page masterpiece. However, the crowd, incapable of comprehending such thoughts, would require the  concept of liberty to be thoroughly simplified in order for it to stimulate revolutionary action. Le Bon proposed that  this is where leaders come in. For it is the leader of a crowd who communicates simplified ideas to the crowd and in doing so unites it together and stimulates it to act. 

“The majority of men, especially among the masses, do not possess clear and reasoned ideas on any subject whatever outside their own specialty. The leader serves them as guide.” (The Crowd: A Study of the Popular Mind – Gustave Le Bon)

In the modern day one can see how invigorated and rejuvenated crowds become when they hear a leader pronounce that a cause is being  fought in the name of freedom, peace, or prosperity. Once these words are proclaimed the members of the crowd nod their heads in blind obedience to whatever else follows from the leader’s mouth  completely ignorant as to the corrupt purposes that may be the true guide for the leader’s  actions.

“How numerous are the crowds that have heroically faced death for beliefs, ideas, and phrases that they scarcely understood!”(The Crowd: A Study of the Popular Mind – Gustave Le Bon)

Referring to the ideas which leaders manipulate in order to govern and control crowds, Le Bon wrote:

“By many they are considered as natural forces, as supernatural powers. They evoke grandiose and vague images in men’s minds, but this very vagueness that wraps them in obscurity augments their mysterious power. They are the mysterious divinities hidden behind the tabernacle, which the devout only approach in fear and trembling.”(The Crowd: A Study of the Popular Mind – Gustave Le Bon)

Approaching these simplified, and therefore gravely misunderstood, ideas as mysterious divinities, a crowd always forms a  religious relationship to the ideas which motivate them to action. This being the case even when the ideas have no explicitly religious component:  “A person is not religious solely when he worships a divinity, but when he puts all the resources of his mind, the complete submission of his will, and the whole-souled ardour of fanaticism at the service of a cause or an individual who becomes the goal and guide of his thoughts and actions.

Along this line of reasoning Le Bon continued:

“Were it possible to induce the masses to adopt atheism, disbelief would exhibit all the intolerant ardour of a religious sentiment, and in its exterior forms would soon become a cult.”(The Crowd: A Study of the Popular Mind – Gustave Le Bon)

While crowds are capable of acts which achieve both good and evil, Le Bon believed that more often than not  crowds commit barbarous and immoral actions.  Why do crowds so often act in an immoral manner?

Le Bon put forth the following explanation:  “our savage, destructive instincts are the inheritance left dormant in all of us from the primitive ages. In the life of the isolated individual it would be dangerous for him to gratify these instincts, while his absorption in an irresponsible crowd, in which in consequence he is assured of impunity, gives him entire liberty to follow them.

The 20th century  psychologist Carl Jung reiterated this idea:

“…if people crowd together and form a mob, then the dynamisms of the collective man are let loose – beasts or demons that lie dormant in every person until he is part of a mob. Man in the mass sinks unconsciously to an inferior moral and intellectual level, to that level which is always there, below the threshold of consciousness, ready to break forth as soon as it is activated by the formation of a mass.” (Carl Jung)

Nonetheless, Le Bon believed he understood what motivated individuals to join a crowd.

When an individual lives his life as an individual – that is, when he forced to take responsibility for his life – he is apt to feel a crushing burden and sense of impotence he can’t seem to shake.

In joining a crowd or a mass movement, the individual is temporarily relieved of this responsibility and sense of impotence, and comes to feel that he is capable of shaking the foundations of the earth:

“In crowds the foolish, ignorant, and envious persons are freed from the sense of their insignificance and powerlessness, and are possessed instead by the notion of brutal and temporary but immense strength.”(The Crowd: A Study of the Popular Mind – Gustave Le Bon)

Le Bon thought that we are all in a sense a part of a crowd, as we are all  motivated by ideas and ideologies which are socialized into us and via communal action unite us with others in our culture. Many of our actions, in other words,  are motivated by ideas, beliefs, and ideologies which we do not understand. Le Bon thought it was impossible to fully extricate one’s self from all of these implicit ideas.  Yet he did maintain that partial freedom and independence can be attained by bringing to the light of reason the ideas, values, and beliefs which guide our actions. For as Le Bon  wisely claimed:

“The tyranny exercised unconsciously on men’s minds is the only real tyranny, because it cannot be fought against.”(The Crowd: A Study of the Popular Mind – Gustave Le Bon)

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Academy of Ideas

Source

https://academyofideas.com/2013/07/the-nature-of-crowds/