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Strategies & Market Trends : The Art of Investing

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Dec 26 4:00 PM EST

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To: jttmab who wrote (871)	2/19/2000 2:57:00 AM
From: Stuart C Hall	Read Replies (1) of 10713

A different "psychology" question....a stock is rated "strong buy" by all analysts covering the stock....the stock goes down 50%. During the trend all analysts reiterate their "strong buy"...the CEO/CFO call a closed conference call with the analysts....a number of analysts lower their recommendation to "buy" and "hold" but raise the earnings estimates! Psychologically, what's going on? Once you've committed to a course of action, there are varying degrees of cognitive dissonance to reverse course. It isn't easy to admit that you're wrong, especially when people pay you to be right. Much the same reason that many traders do not set limit sell orders 10% below their purchase price but instead buy additional lots of their losers that are in a slide because they are now a bargain (comparatively). Sun Tzu's disciplines are awesome here. He knows what his goals are, sets targets and acts according to the market's behavior, not his predefined expectations. As a mathemitician, you know about the lowest common denominator. Psychology has the same concept and it is the behavior displayed in Mass Psychology samples. Riots happen because you lose your indivduality when the mass forms it's own seperate identity. Thus, your market contrarians who sell just as Grandma opens her E-Trade account. They know the signals that indicate critical mass and move against the grain at the right times.

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