behavioral finance
What do you find most interesting about this column, "Investors Can Be Their Own Worst Enemy"? For me, it's the third-to-last paragraph,
This attitude would also mesh with another common trait, framing evaluations on meaningless benchmarks, such as what price you bought a stock.in conjunction with the last paragraph,
Unfortunately, in many cases the stock has come to the public's attention because of its strong previous performance. When this is followed by a reversion to the mean, new investors get burned.Is a stock with a strong performance likely to revert to the mean only if you didn't own it, rather than only if you did?
As Morningstar does, I believe in evaluating an intrinsic value for a stock, and if that doesn't change, presumably one should expect the price to revert to that, if not exactly to its mean. It's fair to suggest that people are inappropriately reluctant to revise downward their estimates of the value of the stocks they own, particularly when they're underwater, and are more willing to suppose that the market move is justified if it doesn't conflict with a viewpoint in which they're invested, both emotionally and financially. This, presumably, is the point; the behavior of the stock isn't different because one doesn't own it, but which kind of mistake one is more likely to make may be.
