Overpaying for "Winners"

Sep 2017

Everybody loves a winner, as they say, and in investing this equates to investors frequently paying excessive prices for popular stocks.  The corollary is that everybody dislikes a loser, so investors frequently drive the prices of unpopular stocks excessively low.  Value investing exploits these two tendencies—which are grounded in human nature and studied by behavioral scientists—by focusing on buying unjustly unpopular stocks and selling unjustly popular ones.  This seems to be very hard for the average investor to do, including some experts on behavioral finance.