How to resist the nudge to invest by rumour
Even those who have built up a strategy over years may rush into a trade when a stock tip comes
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A FRIEND mentions a counter that is likely to double in three months. The same name comes up at golf the following weekend, and again over the phone with a former colleague. He even forwards a chart with a green arrow on it.
There is a mad rush to key in the buy order. The investor believes he has triangulated three independent signals. He has heard one rumour travel through three branches of the same network.
In 2008, four economists – Jeffrey Brown and Scott Weisbenner of the University of Illinois, Zoran Ivkovic of Michigan State University and Paul Smith of the Federal Reserve Board – published research in the Journal of Finance examining how community stock ownership shapes individual decisions to participate in the market.
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