Dorothy Gale from the Wizard of OZAt a recent sleep-over party, my teenage daughter and her friends selected a movie for after-dinner entertainment. The FIOS Movie-on-Demand catalogue had over 16,000 titles, (including new releases) yet the kids selected the old classic, The Wizard of Oz, which they had all viewed previously.

There was no debate, and the decision seemed reflexive; a cultural Rorschach test of sorts. Was their selection rational and utility-maximizing? Or was it an illustration of biases found in behavioral finance literature? What other interpretation(s) can be made about this unexpected choice?

An investor looking for a stock pick faces "only" about 6,000 possible choices. If one is not a quant (screening for factors) — doesn't a similar subconscious decision-making occur? Is this Peter Lynch's "buy what you know?" Or are investment choices irrationally influenced by cultural and/or subliminal factors and/or groupthink?

Keynes' Beauty Contest analogy notwithstanding, an overview of the construction of a stock-picker's Rorschach Test might be a useful first step in identifying one's own subliminal biases…

Tom Marks writes:

Rocky raises interesting questions, but a group of teenage girls selecting a movie is very different from

1. a group of teenage boys selecting a movie (in which the emphasis is likely to be less on consensus building, and more on establishing authority, status), or

2. a single teenage girl selecting a movie (in which she is not subject to the perils of groupthink), or

3. a single teenage girl selecting something where some serious stakes (i.e., risks) were involved (say, in the selecting of a prom dress, or to which college she wished to apply early-decision). 

Kim Zussman comments:

Keynes may have got it wrong for a change: stock picking should not be judging what the consensus thinks is beauty, because that is already priced. Stock picking is more like a prospective beauty contest between the teenage girls, and mimics what "seriously" dating boys should be doing — correctly predicting which one will be most beautiful (in all ways) as a grown woman.

Of course most boys that age are day-trading, and not looking at long-term investments. Whether heavily traded girls will ultimately be shown as value or growth is an exercise left to single readers. 





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