Leadership Insight

Essential Skills and Strategies for Managers of Growth Companies

by Kirby Cochran

Unlocking the mysteries of human

behavior can be your ticket to driving
shareholder value.
TABLE OF CONTENTS

The Psychology of Investing

1. Stock Price Shepherds 1
2. Why Investors Buy Stock 2
3. Investors Are Emotional 3
4. Drum Roll Please . . . I’m About to Buy Stock 5
5. One Point in Time 6
6. The Rubber Band of Volatility 8
7. Should I Stay Or Should I Go? 11
8. Culling the Herd 13
9. Emotional Twin Powers: Fear and Greed 15
10. Fear: First Loss, Best Loss? 16
11. Greed: Pigs Get Slaughtered 18
12. Discipline 19
13. What is “Fair Value?” 20
14. The Efficient Market Hypothesis and Other Distractions 22
15. Supply and Demand 24
16. Taking Charge of Your Future 24
17. Conclusion 26

COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED

1. Stock Price Shepherds as just another fundraising effort to
fuel their goals for the business and
It starts with the shareholders.
give little thought to the obligations
Shareholders drive the value of
and responsibility which comes with
the company. However, it is my
having a base of shareholders.
observation that most Senior
Management teams fail to understand
how their shareholders can affect the
stock price of their companies. Some
managers are even contemptuous
toward shareholders, looking at their
responsibilities to the shareholders as
an unnecessary burden, an annoyance
that interferes with the running of the
As Senior Management work
business.
to fulfill their mandate to increase
When management teams do
shareholder value, they ought to
understand how shareholders drive
realize that they have become
the value of the company1 (after
stewards of two sides of the business
all this isn’t something they could
(generating sales/earnings and
pick up in business school or from
increasing their shareholder value
traditional consulting firms) they
through raising the stock price).
want to know more about their
These two sides are just like a Yin
shareholders. They have spent years
and Yang of growth and success–two
learning their business—the specifics
inseparable halves that require equal
of their industry and the competitive
nurturing for the company to flourish.
landscape. They go to great lengths
Senior Management teams look to
to understand the customers who buy
better understand their shareholders;
their products and services and how
the under-served and neglected
to manage their production and sales
side of their business. They need
organizations.
to know what threatens and what
In contrast, they may have been
encourages investors to buy and sell
only passively involved in getting
their stock. One absolute necessity for
and retaining their shareholders.
management teams is to understand
Unfortunately these management
the psychology of their investors.
teams often look at equity financing

COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED


The psychology of investing looks
at how people think and behave.
It offers insights into the ranks of
investors who are sometimes driven
by powerful emotions rather than
logic and reason. These emotions
are easy to identify with; we all
have them. But, that same empathy
makes these emotions difficult to see
in others without first understanding
some guiding principles.
Over the years, I have consulted
with Senior Management teams in
dozens of growth companies and have
seen firsthand how gaining access
to the skills and strategies outlined
in this article empowers managers
to become leaders in their industries
and to build and sustain an enduring
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 2
competitive advantage. These are
principles which should guide
Senior Management teams as they
endeavor to understand shareholder’s
behavior. Prepared with these skills
and strategies, management should be
able to prevent being sucker punched
by a sudden (yet predictable and
preventable) drop in the stock price—
because they will understand the
psychology of investing.
2. Why Investors Buy Stock
The psychology of investing
starts at the beginning—the purchase
of shares of stock. One signature,
one phone call, one click of a mouse
and—voila—an individual turns from
a prospect into a shareholder. What
is the thought process that motivates
someone to take a hard-earned dollar
and cast their lot with a company by
purchasing its stock? What makes
owning that little piece of a business
so attractive? Why do they do it?
We know that a lot of people are
doing it. More people are investing
in the stock market today than ever
before. We even hear of the working
class being renamed the “investor
class”. In fact, over half of Americans
now own stock in some shape or
form.2 Why?

The main reason investors buy
stock is because they think its value
will go up.
They buy because they think they
will make money. Oh, they may not
think it will deliver a return today
or even tomorrow, but it is nearly
universal that individual investors
are driven to make the purchase
because they expect to gain value
on the money they invest. They are
looking for that “R” in ROI (return on
investment). Investors don’t just think,
they expect to make money when they
invest.
Not every investment makes
money. Some investments make
money and some lose money.
Investors know this, so it is not an
easy decision to part with those
dollars. In fact, the decision to
purchase is often highly emotionally
charged.
The rush of emotions can cause
this moment to become an anchor
point in the investor’s mind and
forms a reference point, a baseline,
against which all other points in time
are measured over the lifetime of the
investment. They know at what price
they bought; now they want to see if
they will end up selling high or low.
Investors are always looking back
at that decision to buy and weighing
their feelings against that original
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 3
expectation—that the value of this
stock will rise.
3. Investors Are Emotional
We would like to think that
financial decisions, especially big
ones, are made rationally. There is
a place inside us that says when it
really counts, we will weigh all the
facts, seek out all the information
available and, using our grand powers
of reason, make an educated and
informed decision which should yield
strong results.
The truth, however, is that we
don’t.
In fact, the investing behaviors
of human beings do not make much
sense at all. On top of that, they do
not typically perform very well—
considering that most individual
investors generate returns lower
than a good mutual fund. One study
compared investors within the fund to
the overall performance of the fund
itself. The results: “…the data show
 Page 4

that investor returns have generally to buy stocks or tradable securities

lagged those of the funds’ published can be as fickle as decisions to buy
total returns… In fact, in every groceries. In order to understand
diversified stock-fund category and the buying and selling behavior
all but a handful of sector categories, of investors, you need to gain an
funds’ 10-year investor returns lagged understanding of the emotional
their total returns.”3 thought process, the essential
In fact, one study claims that psychology that drives it.
our emotions make us bad investors I love what Robert Armstrong and
and went so far as to compare Jacob Ward said in February of 2008.
investing results from a group of “You’re stupid with your money. You
individuals who had brain-damage may fancy yourself a shrewd investor,
affecting the emotional areas of their but if you have normal human
brain, with a control group who instincts—if you stand up and cheer
had emotions intact. The results? at sporting events, if you follow the
“Emotionally impaired participants crowd toward the exit at the theater—
outperformed the non brain-damaged then you have the instincts that
participants...”4 make investors alternate
Investor behavior between delirious
only starts to make greed and
sense when viewed inconsolable
through the lens fear. Like
of psychology. most of
That’s because your peers,
investors you are
make wired to
decisions buy high
from the and sell
gut rather low…”5
than from Another
the head. It example comes
is just the way from Terrance
we humans are Odean at U.C.
put together. Berkeley. Several of
Decisions his studies show that

COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED


“when people have the choice of two
stocks to sell, more often than not,
they sold the stock that did better in
the future and held on to the one that
did worse. And, when they bought
something new, they tended to buy
a stock that did worse than the stock
they just sold.” His mentor, Daniel
Kahneman told him, “It’s expensive
for these people to have ideas.”6
For better or worse, most investors
are at the mercy of their humanity.
Investor behavior is often emotional,
irrational and illogical, and for that
reason this behavior is best understood
in emotional terms, not rational terms.
4. Drum Roll Please… I’m About to
Buy Stock
Where does it start? As I
mentioned earlier, the first hurdle, the
first commitment, the decision to ride
the roller coaster happens when the
decision is made to make that initial
purchase.
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 5
An entire discipline, called
“Behavioral Economics” has sprung
up as scientists and investors alike
try to understand the impact of
psychology in the market. Many of
the concepts that I have been teaching
students over the past decade are now
being more widely discussed and
published.
Even though it is intellectually
possible to understand that our
emotions are not great teachers when
it comes to investing, I have found
that it is nearly impossible to be
an investor and be dispassionate in
approaching the market. That is why
I teach companies that they need to
understand the psychological picture
instead of simply advising them to
encourage their shareholders to be
less emotional. Richard Thaler, from
the University of Chicago, said about
the emotions that drive investors,
“I don’t think you can fix what’s in
your head.”7 In other words, investors
aren’t going to change, but they can
be understood.
I am speaking from experience.
Over the past 30 years I have been one
of those investors. I have felt every
exquisite dip and turn in the emotional
roller coaster of investing. I have
invested in public companies; I have
invested in private companies. I have
traded in all kinds of stocks, from

small and micro caps to large caps;
I’ve traded in most major currencies,
traded commodities, traded options—
you name it.
Through it all, I have been
blessed to taste that sweet feeling of
exhilaration and triumph as a trade
becomes a windfall. And, I have
also felt like kneeling over the toilet
and vomiting my guts out over a
trade that just buried me (or worse,
one that I was still in). Think about
times when you have felt this way.
You agonize over your business
and the far-reaching impact of the
leadership decisions you make. Your
shareholders go through the same
agony and ecstasy of investing every
time they make a decision to buy or
sell your stock.
Another factor that drives
the emotional intensity of a
stock purchase is the scarcity of
information. Your investors must peer
into a very murky crystal ball and
make the decision. Investors often
believe they have enough information,
or that the little bit of information they
have is sufficient for them to “outwit”
the market. As Daniel Kahneman puts
it (Kahneman won the Nobel Prize
for essentially birthing the field of
Behavioral Economics), “In fact, in
most situations what you don’t know
is so overwhelmingly more important
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 6
than what you do know that you
have no business acting on what you
know.”8
So, with this huge emotional
mountain to climb why do investors
buy?
Because they don’t read
Kahneman, they run on emotion, and
they want to make money. Finance
professionals often describe the act of
making a trade as “pulling the trigger”
on the deal. Just like the firearm
metaphor suggests, making a purchase
creates a commitment from the
buyer—and just like a bullet leaving
the muzzle of a gun, there’s no calling
it back.
It’s a little bit of fact and a lot
of faith—remember, nobody buys a
stock wanting or expecting to lose
money.
5. One Point in Time
After becoming a shareholder,
how does an investor evaluate
whether or not he or she made a good
investment? After all, there is a lot
of emotional turmoil riding on the
outcome of this decision.
Simple, they look and see if the
stock is trading for more or less than
they paid.
The question is, what does the
price they paid have to do with what
the stock is currently worth? Answer:

nothing, nada, zippo. Did I make
money? Did I lose money? These are
the same criteria people use at the
casino!
Investing is theoretically about an
exchange that creates greater value.
Companies raise money by selling
stock. The money they raise should
allow them to accelerate or increase
the magnitude of their execution,
thereby creating more value for the
customer and the shareholder alike. So
why do investors act like they dropped
money on a tip at Churchill Downs?
In order to really understand what
your investors are thinking, you have
to get inside their heads. You have to
listen in on that conversation they are
having with themselves. Put yourself
in their shoes.
Here’s a scenario: You have
diligently saved $10,000 to invest.
After extensive research, you have
found a stock that is trading for $1 per
share. The company looks very good.
It has developed an exciting new
technology and appears to be on the
fast track with a bright and promising
future ahead.
On top of that, you have heard
through the grapevine—a friend of
a friend, named George, who is both
very successful and experienced—
that, the way this company is going,
the stock could hit $100 per share in
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 7
the next two years. To yourself you
are saying, this could be the luckiest
find of my life! Boy, am I good. Here
I am with an opportunity to get in
on the “ground floor,” before this
company is even on most people’s
radar. This is just too good to pass up.
You make the purchase and are
now the proud owner of 10,000 shares
of stock in the company.
Hey, if this deal pans out I might
even be able to retire early. In fact,
with the money from this deal, I can
look for other deals and make a ton
of money. If I did that, I could quit my
job. I’d never have to deal with my
boss again!
A month later the stock is trading
at $2 per share.
You can hardly contain yourself.
In a month you just doubled the
money it took you most of a year to
save up. Think how long it would
have taken to earn a return like that
from your savings account at the
bank! You are thinking that you have
outsmarted just about everyone.
Think of the other investments
you could have made: the money
could have been sitting in a certificate
of deposit (CD) earning 5% annually.
It could have been invested across
the market and earned an average of
7.8%. Instead, you just earned 100%
in a single month!

Then the doubt starts setting in;
you get concerned that you might lose
what you have just gained.
Surely this can’t keep going up.
Sooner or later, it’s going to come
back down. What if I lose everything
I have in this deal? You know, I
probably will never see returns like
this again. These are once in a lifetime
opportunities. The smart thing to do
would be to sell now and lock-in my
profits. I’ve already made $10,000.
That’s enough to cover the kids braces
and get my wife that new camera
she’s been wanting—maybe we could
even go on that second honeymoon.
Besides, once I sell, I don’t have to
endure the stress of the uncertainty
I feel wondering what will happen.
Okay, that’s it. I’ve decided. I have to
sell.
And then, but… was it the right
decision to sell? What if I had held on
a little longer?
In part, because the decision is
such a big deal, investors are often
powerless to resist the temptation to
compare the price of the stocks they
own to that single point in time—the
time they purchased the stock. The
logical approach, of course, would be
to “calculate whether a stock is worth
its current price.”9 But, whether or not
it is worth its current price does not
tell us whether we made money or lost
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 8
it. It does not stroke our pride and tell
us we are wise and gifted and have the
Midas touch.
6. The Rubber Band of Volatility
Once investors have purchased
the stock, two principles start working
on them in combination. First, the
faster a stock accelerates beyond
the original purchase price the
greater the volatility that is created.
Second, as volatility grows, so does
the psychological impact and the
likelihood of poor decision-making
when it comes to their buying and
selling behavior.
I like to use the example of a
rubber band to illustrate this point.
Imagine one end of the rubber band
is looped around a peg posted at that
“one point in time,” the time at which
the stock was purchased. As the stock
price accelerates, the rubber band
stretches out. As it stretches, it gets
tighter and tighter. The tension grows
more and more intense. And the more
tension there is, the more volatility
there tends to be in the stock. The
price swings are larger and more
pronounced. Eventually the tension
gets so great that it breaks.
Put yourself back in the shoes
of the investor in our example. The
pressure to sell was previously too
great for you after gaining 100% in

a month. But what if you had stayed
in? Let’s say you made the same
purchase, but instead of selling once
the stock got to $2 per share, you held
on.
By the end of the second month,
the stock is at $3.50 per share. Not
only can you afford the braces, the
vacation, and the camera, but you are
thinking a new snowmobile would
look great in your garage and your car
suddenly seems like its ready to be
updated.
This is getting exciting! I knew I
was smart to pick this stock.
You are thrilled. You start chatting
to your friends about how you have
been studying the market and just
made a great buy that went from $1 to
$3.50 in two months. Of course, your
friends lay on the compliments and
wonder at your great insight. If only
they could be equally gifted. Life is
looking pretty good.
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Page 9
Within four months, the stock is
trading at around $5 per share.
That’s $40,000 in profits only
four months—which is like making
$120,000 a year! I only get paid
$80,000 at my job now. I just earned
half a year’s salary. Maybe I’m foolish
to even be working a regular job. I
really am smart—I could make a lot of
money trading. I seem to really have a
knack for investing. If I invest full time
in deals like this, I could really boost
my income. A few good years and I
could retire. Maybe pull in several
times what I do now. I think I owe it
to myself to at least consider it. And, it
was so easy…
You ponder just how astute you
have been. Your head fills with
thoughts of vacations, a larger house,
new cars, prep school for the kids.
And then the doubts settle in and
the rubber band starts twisting…

Well, the market has been acting
strange lately. What if the stock goes
down?
Now that you have dreamt up all
the stuff that your earnings represent,
you have heart palpitations at the
thought of losing it all. In order to
protect yourself from this loss, you
develop a game plan: you
will watch the
stock daily
and if it drops
by even a
dollar you will
immediately sell.
But, the
stock doesn’t drop.
It goes up… way
up.
It hits $7 per
share, then $8. The
game plan takes on a
different dimension.
Now you are saying to
yourself, quitting my job
may not be just a pipe dream.
It might be the smart thing to do.
Okay, if the stock hits $16 per share,
sayonara angry boss, hello wonderful
world of investing (with a new lifestyle
to boot).
Within the first year, the stock is
trading between $12 and $13. The
$16 goal seems within reach and your
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 10
overall net worth has grown by over
$100,000.
Just think of what I could do
investing the big money, you think.
Then, the growing pattern shifts.
The stock price begins to retreat. It
drops by $1 per share… then $2.
Do you sell like you had earlier
promised yourself?
Of course not. You rationalize that
the stock has grown this far, it is likely
only a momentary hiccup, a temporary
downturn that is sure to recover.
You think, if the price just gets back
to $13, then I’ll sell. I’m not asking
for too much. Besides, that would
realistically put me in a position to
quit my job.
The stock opens the next morning
at $7 per share. Your plans are on very
shaky and precarious ground.
Unbelievable. But, I still have faith
that the stock will recover. I’ve heard
other investors talk about riding out
the storms of the market. I just need
to weather this fluctuation. I’m sure
it will go back up. I can just feel it. It
should easily make it back to the $12
or $13 neighborhood, maybe better.
Remember, George said it could hit
$100. At $100 per share, my 10,000
shares would be worth $1 million.
But, hey, I don’t need $100 per
share right now. I just need $13. I’m
not being greedy. All I need is enough

to quit my day job and that will be
sufficient. The market must have got
this wrong. It’s sure to straighten out.
I made that money and now I just need
to get it back.
You go to work ignoring the
market and willing the stock price to
recover.
Within the next month, the news
is out. The revolutionary technology
at the center of the company’s
business has become obsolete due to a
competitor’s product. Devastated, you
think to yourself, I have a mind to call
the company’s CEO right now and tell
him what a fool he’s been. How could
he have allowed this to happen?
But before you make any other
calls; you realize that you had
better sell quickly if you hope to
recover even your initial investment.
Ironically, you fire off the sell order
as the price hovers at just over $1 per
share.
What we see in this example is
the rubber band principle at work. As
the investor in the example, you made
all the classic mistakes. You anchored
your opinion on the date of your
purchase. Perhaps you compared your
returns with other “safe” investments
(CDs, Money Market accounts,
T-Bills,10 etc.), or maybe you looked
at the market in general. You knew
your returns were outpacing what was
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 11
common and as that distance grew,
the rubber band just got tighter and
tighter.
The same studies that show
that investors earn poorer returns
individually than a fund does
collectively, also indicate that there is
a link between poor investor decision-
making and volatility.11 This makes
some sense as we consider that the
psychological pressure increases as
the tension in the rubber band grows
toward its snapping point.
7. Should I Stay Or Should I Go?
One problem is that investors do
not know when to sell. They aren’t
typically disciplined enough to
know how or when to sell. It really
boils down to buying and selling on
emotion rather than on fundamentals.
In the case where you imagined you
were the investor, all along the roller
coaster ride you would throw out
benchmarks for your decisions. If I
could only get this much, I will sell. If
the stock just gets to a certain point, I
will sell (I don’t need much—just one
more dollar).
When the stock starts to fall, these
investors are always thinking it will
recover. They typically do not put
stop-loss orders in, they hold on…
and ride it all the way down, hoping
it will go back up. We have a saying:

even a cow will bounce if you drop it
from high enough.
These guys are not looking at
fundamentals. They are not looking
to see if there is a reason for the stock
to recover, they are just shooting
from the hip. With every little peak,
they get their hopes up and say to
themselves, see I knew I was right and
that it would go back up. But, without
the underlying fundamentals, the
stock just plummets again. When the
company fails to produce earnings and
revenues, these investors ride it all the
way down.
This is part of the reason the
shares owned by these investors could
be considered overhang. Overhang
is cheap stock—cheaply purchased
relative to the current price, which
threatens to unpredictably drop into
the market in sufficient volume to
impact the price. Managers want to
do whatever they can to patriate the
overhang stock into the float (the free-
trading shares in the market) to keep
the price intact. In other words, they
need to find buyers for the cheaply
gotten stock that earlier investors are
going to sell. They need to increase
demand in order to absorb the increase
in supply, which should help keep the
price intact and hopefully on the up-
tick as the overhang is patriated into
the market. If these shares ramp up
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 12
supply in the open market without an
equal ramping in demand, the stock
price is usually going to fall.
This effort by management is
about moving stock from weak hands
to strong hands; strong hands being
new investors who have a whole new
investment horizon and new return
expectations.
The only research our investor did
was before making the initial purchase
(and even that was lukewarm.)
After becoming a shareholder,
we never saw a comparison of
the selling price of the stock with
some objective valuation metrics.
Fundamentals are out the window.
Instead, the thought process was all
about feeding his mood vis-à-vis an
internal conversation riddled with the
emotional content that makes for bad
investing.
In both my teaching and
consulting, I outline the role of
investors as a company migrates
through the value-changing events
in its growth. Almost universally,
people tell me that they want to sell
when the company hits one of these
events. This perspective is particularly
troublesome for the younger company
because if it is not protected by
lock-up agreements or has not sold
its investors on the vision of the
company over the long haul, then the

stock becomes susceptible to rampant
selling and the company’s value tanks
because everyone dumps their stock
and the price blows off.
This illustrates the critical point
that investors don’t know when to
sell. Senior Management needs to
know that investors don’t typically
know when they should be selling.
I have often met with CEOs who
are frustrated by a shareholder who
has sold unexpectedly or as soon as
possible after a value-changing event.
Upon further investigation, I find
that more often than not, the investor
would have stayed in the stock if
someone had reached out to them
with a reason to. Senior Management
teams should be prepared to help
investors understand why they should
hold from selling and wait for a more
opportune time to liquidate their
shares into the market.
8. Culling the Herd
10,000 lemmings can’t be wrong.
At least that’s the theory employed
by investors who buy or sell under
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Page 13
the collective peer pressure of “herd”
mentality.
One of the hallmarks of growth
companies is that shareholders have
limited resources for information
about them. Scant information
reinforces emotional investment
decisions and without a more
principle-based decision criteria,
investors often fall victim to herd
mentality.
An investor thinks, since I don’t
know what I’m doing, I’ll watch for
others who must have access to more
information than I do. My fellow
shareholders undoubtedly pay closer
attention and do more homework than
I do, so I can make the right decision
by closely watching them instead
of doing all that work for myself. I
should make out all right if I just
follow their lead.
The problem is that it is often a
mistake to pull cues from the herd.
The herd may not know what it
is doing at all. Here is why: if you
hear that a stock is hot from your
friend around the water cooler, or
your neighbor who really “knows his
stuff,” it’s probably too late.
You hear, “This stock has already
climbed over 200%, for crying out
loud. You don’t want to miss this
opportunity.”

(Nothing encourages emotional
buying behavior like a good story.)
And, you are thinking you better buy
now and strike while the iron is hot.
Well, what are you doing if
everyone else is already buying or has
already bought in sufficient volume
to drive that 200% growth? You are
probably buying high—after the
200% has already been realized.
Conversely, when you own a stock
and it starts to drop. You hold on for
a little bit hoping for a recovery, but
eventually it drops enough that you
cannot take it anymore. So, what do
you do? You sell… low.
The pattern of buying high and
selling low is not a recipe for making
money, but it is a favorite practice of
the herd.
Institutions also create a herd
effect. I often hear entrepreneurs
coming to me who want to court
the institutions to invest in their
companies. My advice is always the
same: “you live by the institutions,
you die by the institutions”—and what
I mean is that, as shareholders, the
institutions play by different rules and
are motivated differently.
Part of knowing who makes up
your shareholder base is knowing
whether you have institutions that own
your stock. If you do, you need to be
ready to play by their rules. You need
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 14
to communicate with them and craft
your story in a way that is tailored to
them.
Institutional purchases are not
made by the same criteria used by
individual investors. Institutional
buying and selling is done at the
behest of a professional manager.
This is not usually a guy who is
looking for a big opportunity; it is
typically someone who is looking for
justification for his or her actions.
When it comes down to that
justification, he or she wants to be
able to show that they moved with the
herd, but in this case it is a herd of
analysts and other institutions. He or
she wants to show that the decision
was in line with others in the field. If
the decision is in keeping with other
colleagues, the justification for the
position to purchase or sell is there.
The bosses ask why a bad
trade was made and out comes the
justification: well our research showed
that this company would increase
earnings by 44 cents per share and
furthermore we have fifteen analysts
that gave us a general consensus
within one standard deviation of
the mean that they would hit their
earnings. Last year they did hit 38
cents and we believed they would
hit their target this year. Anyway, I
wasn’t the only one that got it wrong.
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Everybody else got it wrong too. What 9. Emotional Twin Powers: Fear
do you expect from me? If the best and Greed
analysts in the world can’t figure it
You get these emotions working
out, how do you expect me to?
in tandem: the fear of losing and the
And on it goes, as they often
greed of not getting more. I remember
manage to mediocrity. The
an episode of Leno shortly after
institutional investor is playing by
the Enron and WorldCom debacles,
different rules and his or her pains
where Wanda Sykes cracked a joke
will be altogether different from the
that Wall Street was now the tough
individual investor, as will his or
area in town, because at least on the
her reasons for buying or selling.
streets nobody was mugging you for
An analyst report could indicate
your future. That comparison–trading
that someone is going to miss their
stocks and being robbed on the street–
earnings by a penny a share and the
is one that brings home the reality of
institution sells. Earnings could be
just how deep the fear and greed run
too high for the institution to consider
in the human psyche.
sustainable, and they sell.
I recall watching the market 15
What makes this so essential
minutes before the closing bell. Five
to understand is that institutional
minutes earlier I had called in an
purchases are usually made in much
order to buy 10 S&P full contracts.
greater volume than individual buys—
I had gone long (which means I was
these guys have the capability of
anticipating that the market would
moving the market for a stock in one
go up). I was already up a full point.
fell swoop.
I had just made over $10,000. The
I tell people, however big you get;
palms of my hands were sweating;
you still want the individual investor.
sweat was beading up on my forehead
And, I do not mean day traders; I am
and I felt like I had just injected a full
talking about investors who believe in
syringe of adrenaline.
your company. Day traders generally
My body had a physiological
just create a distraction from what is
“fight or flight” reaction every bit as
really going on because they do not
real is if someone had pulled a gun
hold for long periods of time. In other
on me and demanded my wallet. The
words, the more day traders you have
emotions driving investors are real
in your shareholder base, the more
and intense. As that tension grows in
volatility there is.

COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED


the rubber band, the intensity of these
emotions grows ever-more acute.
The thing about the market is
that “greed gets you in, and fear scares
you out.”12
It is human nature to compare
investment returns with what a safe
and secure investment would yield.
When a stock starts to climb quickly,
investors start panting and getting the
jitters thinking that this growth is not
sustainable. Because it is outdoing
most everything else, investors feel
like they are cheating. The fear of
losing what has been gained makes
investors think and act like they just
got caught with their hands in the
cookie jar.
But, then the greed kicks in. They
hear a story or a tip about how great
the stock is going to do and they hold
on. They believe the story—they
want to believe it—but their fear is
making them sweat bullets. These two
emotions are driving them to a very
emotionally precarious place.
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Page 16
According to Wendy Hackett-
Dominguez, “Pride is the pleasurable
feeling investors have when
investments do well. Remorse is the
painful feeling investors have when
their investments do poorly and they
second guess themselves. Remorse
tends to be felt more deeply than
pride. Remorse compels people to
avoid situations in which the chances
of their feeling remorseful are
perceived to be high.”
In other words, investors are afraid
of losing money. So afraid that they
sell at the wrong time, minimizing
their returns, in order to avoid the
chance of losing more money.
Pride cometh before the fall.
Remorse? It looks like that cometh
after.
10. Fear: First Loss, Best Loss?
Fear is a big motivator for a lot of
human behavior. It is no surprise then
that fear is one of the emotions that
causes investors to sell at the wrong
time.
I often hear companies use the
axiom, “first loss, best loss” in terms
of their operational management.
While this may be an excellent
heuristic when it comes to your
assembly line or making the decision
to terminate a supply relationship, it
does not correlate to stock ownership.

With stocks, this is simply running
with the “devil you know” to staunch
your emotional bleeding, but ignores
any real valuation or valid decision
criteria. In truth, without more insight
than simply looking at the stock price,
there is no way to know whether
“cutting your losses” is also cutting
your returns.
Consider this scenario. You
buy a stock at $20 per share, which
immediately retreats to $15 per share.
Are you likely to sell? Most investors
will hold. Why? Because, they didn’t
buy expecting to lose money and
selling confirms to them that they
made a bad decision to purchase.
People do not want to lose money.
They do not want to sell a stock for
below what they bought it for. When
the stock goes down, they ride it out
hoping to get their money back before
they get out.
What if you have been in this
stock for a while? You have gained
quite a bit of stock value since you
first bought it, but all that value is
sitting out there, at the mercy of the
market—at risk. What if you lose it?
You might have been counting on that
money for any number of things and
it is hanging out there in the market
where any nasty downturn could take
it away from you.
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Page 17
You start chiding yourself saying,
okay, maybe this wasn’t a good
decision, but if I sell now my chances
of making my money back are zero.
I’ll hold for now and wait for the stock
to recover. Once it gets back to $20,
I’m out. I’ll sell… if I can just get my
money back.
One of the hardest things for
investors to do is to take a loss.
Yet fear often causes them to do
worse with their portfolio than they
otherwise would have. More than that,
however, when someone sells for a
loss, it confirms that they made a bad
decision and they think that they must
be flawed or that something is bad
about them. Deep down, however,
they do not want to believe that they
are bad or flawed, so they don’t sell.
More than just feeling remorse at
losing money, selling at a loss would
assail their self-perception; it would
attack their very identity. And while
this war rages inside them, the stock
continues to decline.
Fear also provides the motivation
behind what is called the “December

Effect.” In order to ease the blow
that they bought a bad stock or to
eliminate the uncertainty of not
knowing whether or not they did,
investors will look for an alternative
way or reason to sell. One alternative
to selling and getting nothing for the
transaction is selling at a loss, but
using that loss to offset taxes. At least
they get something out of the deal,
right?
Sometimes the plan is to sell
the stock at a loss, and turn around
and buy it back in the New Year, but
take the write off. An investor may
have another investment, maybe they
transacted a real estate deal and after
capital gains they still need an offset.
Or, maybe he or she is simply acting
on the advice of a tax accountant.
They may use the end of the tax year
as an artificial line in the sand, saying,
if this stock does not do something
before the end of the year, I will sell.
Another possibility is that they
have been in the stock for a couple
of years and it has not done anything
and is still trading close to where
they bought it. In the end, sometimes
they buy back and sometimes they
don’t, but the increased volume can
wreak havoc with your stock price and
this is another example of behavior
that (with a few exceptions) is very
predictable. Senior Management
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Page 18
teams need to be aware of the
December Effect. It is all part of
understanding who your investor is
and how they are going to react.
Odean, performed a study on
trading behavior of investors while
he was a professor at University
of California at Davis, His study
concluded that investors do not want
to take additional risks with stocks in
which they have already made money.
However, they will tend to hold on
and risk additional losses with stocks
they are currently losing money on.”13
11. Greed: Pigs Get Slaughtered
Greed can be described in its
extremity as a horrific trait. I’m
talking about extreme greed; the
type of immoral behavior rooted in
greed that qualifies this vice as one
of the seven deadly sins. The proud,
avaricious, insatiable desire to obtain
and consume that boils down to an
unbridled want for more.
This type of greed certainly exists
in the market, but more common, and
perhaps more insidious because of
its subtlety is that mild greed that is
just enough to keep investors from
trusting their better judgment. This
type of greed is just enough to tip the
scales in the privacy of the investor’s
mind. These investors may not think
of their behavior as greedy at all. But,

to the extent that their desire for more
overpowers their sense of reason, they
have allowed emotion to dictate their
behavior and surrendered the outcome
of their buying and selling to their
own greed.
Wise investors learn what money
really is available to them and what
is not. They learn to walk away
from money that is not theirs. As
the saying goes, “Bulls make money.
Bears make money. And, pigs get
slaughtered.” Greed gets people into
the market. They see an opportunity
to make money, and greed gives them
“rose colored glasses” when they
evaluate the purchase. Then greed
keeps them in the deal when they
should get out, or when the company
is doing well, they feel guilty because
they know they made the trade on
greedy motives and this sets them up
to become victims of fear.
“Human nature is a coin that flips
between greed on one side and fear on
the other side. Unfortunately this coin
for most investors lands on the edge…
and the edge is stupidity.”14
Senior Management teams need
to watch for greed and for situations
in their stock where greed may play
a role. They can start to see the
emotions develop. With experience,
you can actually see greed take hold
of these investors and at that moment,
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Page 19
you can say to yourself, alright, I
know how these people are going to
behave. Then management teams can
be prepared to take some action to
protect their company from the result
of that behavior.
(A side note: Senior Managers
need to be able to recognize greed in
themselves and those around as well.
It’s funny, but I’ve seen how greed
sometimes makes people “forget”
their promises.)
Perhaps nowhere is the frantic
pressure point of the twisting
rubber band felt as much as with
companies that are young. They
may be pre-earnings, or even pre-
product. Investors in these companies
are looking for big gains as early
shareholders, and that is fertile soil for
greed to get out of hand. Conversely,
telling the right story about the
company and its progress could be
just what Senior Management teams
need to be doing in order to get these
investors to hang in there while they
get the company off the ground.
12. Discipline
Warren Buffet is quoted as saying,
“Once you have ordinary intelligence,
what you need is the temperament to
control the urges that get other people
into trouble in investing.”15

If it is not reasonable to expect
that investors are going to discipline
themselves when it comes to their
buying and selling behavior, then
how can you assert a reasonable
and disciplined approach for them?
Maybe the first thing to do is ask
why undisciplined trading is such a
fundamental problem.
Senior Management teams looking
to grow their stock price do not want a
sell-off motivated by one of the fickle
emotional triggers that are at the core
of the psychology of investing.
The reason this is a problem, is
that it drives investors to focus on the
wrong thing. They may be focused
on analysts, their friends, the “herd”
or any number of other sullied and
unreliable sources of information.
If there is no message coming from
the company, no long-term vision or
strategy being communicated by the
CEO to counteract the flawed one,
then the company is at the mercy of
whatever story is being told in the
market.
Companies are not helpless in this
regard. If investors were rational and
disciplined, they would be focused on
things like the real intrinsic value of
the stock. Senior Management teams
need to communicate the real value of
their companies in order to inoculate
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Page 20
their shareholders from flawed beliefs
and perceptions of the market.
The great thing about this
approach is that it tempers both
extremes. It counteracts the emotional
buyer and the over-analytical one. The
buyer who breaks down every aspect
of the company and its performance
to number crunching is missing
out on the art of investing. Strong
communication from the company
about its vision and strategy as well as
how it looks at valuing itself can go
a long way to evening out the erratic
behavior of investors and keeping
the company’s stock price on an even
keel.
Business and particularly investing
is an art, not a science.
13. What is “Fair Value?”
The discussion of all the metrics
and data points to establish fair value
is not within the scope of this article.
However, the principle of looking
at the fair value of a stock based on
fundamentals is essential for Senior
Managers who wish to combat
emotional buying and selling that

hurts the stock price of their company.
Here’s an example of someone trying
to get to the bottom of whether a
stock’s price is based in its intrinsic
value:
“Take a profit-making biotech
company [biotech’s are notoriously
difficult to value].… Its market
capitalization is over 90 billion dollars
and yet its annual profit is about one
billion dollars. If one had 90 billion
dollars to spare and put it in … 30
year US treasury bonds at 4.5%, it
would yield an annual return of 4.05
billion dollars. Assume for a moment
that sales… would grow at 50% per
year and the profit margins would be
50%. Assume that its profit margins
would grow at 50% too and possibly
slightly more. Thus its earnings in
five years would be over 8 billion
dollars or nearly $8 per share. It’s
highly unlikely that this would
happen and far more unlikely that
this astronomical growth rate would
continue further on. At today’s market
price of the company, the 90 billion
dollars compounded at 4.5% for
five years in treasury bonds without
change in interest rates would yield on
nearly 22 billion dollars in return. Yet
foolish investors buy the stock.”16
This example illustrates the point
that sometimes a “common sense”
check is needed when it comes to
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 21
stock price and intrinsic value. Buyers
often intuitively know that they need
to do this, but are blinded because
they are operating out of fear and
greed.
I’m no exception. Early in my
career; I had just graduated with my
MBA and I really knew my stuff (I
thought!) I was buying based on P/E
(price/earnings) ratio. I found a stock
and bought 8,000 shares of it based on
P/E ratio alone. The price was around
$7 or $8. I did not even consider the
volume… until I completed the trade
and my purchase had moved the stock
$1 per share! I ended up selling my
stock for around $5 per share. That’s
what I call, “dumb tax.”
The point is, the psychology of
investing will generally influence
investors to buy or sell based on
emotion. Senior Management teams,
however, should know whether their
company’s stock is fairly valued
based on the fundamentals. They can
then communicate those details to
shareholders in an effort to mitigate
the uncertainty and volatility in their
stock price that often comes as a result
of letting the shareholder’s emotions
go unchecked.
The ordinary individual investor
does not understand that. Like I teach
my graduate students, the ability to
finance your company is a function of

the price and volume of your stock, as
long as the market cap and intrinsic
value are within reasonable terms (and
the company continues to execute
on its growth plan, showing they can
grow earnings, of course).
Management takes a fine line
keeping their market cap in line with
the stock’s intrinsic value because
they are working to drive the price
up. While it is possible to create
a momentum-based stock, where
stock price is outpacing earnings for
a period of time, management needs
to stay cognizant that, over the long-
term, their stock will eventually trade
on its historical performance, the
company’s fundamentals, and their
industry’s earning average. certain analytical criteria, or analyzing
14. The Efficient Market Hypothesis
and Other Distractions based on fundamentals. How much
Now, there is a lot of discussion
and debate about what I call “Market
Distractions.” This boils down to
any program, theory, or software that
is designed around the idea that the
market functions in a purely scientific
way.
Prominent among these is the
Efficient Market Hypothesis (EMH).
The primary critics of Behavioral
Economics and its use of psychology
for investment management are
proponents of EMH. EMH is based
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 22
on the idea that the price of a stock
(or other investments that are
traded) inherently contains all the
information that is known about the
investment—that the financial markets
are “informationally efficient.” It
therefore claims that it is impossible to
outperform the market on a consistent
basis using information available to
the market. Chicago finance professor
Eugene Fama, for example, argues
that ‘the empirical evidence is weak
(for behavioral economics), they don’t
have a coherent theory and without
that, there is no behavioral finance.”17
Do not misunderstand; I am a fan
of technology. I think technology is
great for uncovering stocks that meet
the management of stocks, but you
need to reconfirm your entry position
cash does the company have, how
much revenue, what is the content of
their latest 8k, 10k, or 10q reports, are
insiders buying or selling, etc. Instead
of trading strictly on technicals, you
want to be able to say there is a basis
for you to make your position.
At one point in my career, I
was trading in the S&P 500. I had a
computer programmer working with
me full time and we developed a
strategy that our computer program
was built around. It returned accurate

predictions 79% of the time on the
S&P stocks we were tracking. We had
a very sophisticated model essentially
based on these principles. One of the
things I learned from tackling the
stock market with all the technological
tools at my disposal is that the
markets are not random. History and
experience have shown me that the
markets are not efficient.
I first ran into this when I saw a
press release for a company that really
impressed me. I was getting the news
in real time, so I new this information
was hot off the press.
I bought the stock. And, it went
down.
Then I looked back at the chart
and two or three days before the press
release, the stock had jumped up a
dollar or two. I was troubled. This was
not fair. Somebody knew something I
did not know. Since then, I have seen
it time and again; from the “insider’s”
view the markets are inefficient and
always will be. Why? Because people
have access to news you do not have.
No matter what the SEC does,
it cannot police every transaction,
every employee, supplier, or customer
conversation. It is impossible for
all information to be incorporated
instantly into the market and then
determine what the reaction by
investors will be to those events.
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Page 23
Think of the butterfly effect or
the bullwhip effect where seemingly
insignificant changes (in other words,
not newsworthy) can have far-
reaching effects. You cannot foresee
the impact of a hurricane in Brazil,
or a stolen laptop in New York City.
The dearth of information and the
unpredictability of the market are
the Achilles heel of the EMH. With
growth companies this impact is even
more exaggerated because the impact
of the unexpected and the inability of
getting accurate information is greater.
As Gunduz Caginalp puts it, “The
Efficient Market Hypothesis depends
upon a mechanism of arbitrage that
is an idealization that assumes the
existence of many different agents
with diverse interests. When the
participants belong to a few distinct
groups [think insiders] each with its
own interests, the basic assumption is
far from valid.”18
In the end, I believe that you can
run all the analysis you want, you can

back test and crunch numbers and
run simulations, but you can never
simulate the emotion that is involved
in a trade. Which means essentially
that markets are decidedly inefficient.
15. Supply and Demand
What makes the value, the stock
price, go up? I often pose this question
to my classes of graduate students.
I hear answers like “good news,”
“earnings increases,” “operational
improvements,” “lower costs,”
“positive analyst coverage,” “rating
upgrades,” “growth perception of the
industry group,” and the like. While
all of these are reasons that influence
buyers’ belief in the aforementioned
motivator for buying stock, there is
still only one reason the price of a
stock goes up. It’s the simple lesson
on supply and demand that they
were taught in their first economics
class. The price of a stock goes up
because… there are more buyers than
sellers.
For Senior Management teams,
getting the stock price to go up is a
matter of always making sure there
are more buyers than sellers. If there
is not a home for every share of stock
at the end of every day, the price is
going to go down. If the company is
not prepared for more stock to hit the
market (for any of the myriad reasons
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 24
it might), the price is going to go
down.
On the other hand, getting the
price to go up is also as simple as
creating demand—getting the word
out and appealing to more buyers than
you have sellers.
16. Taking Charge of Your Future
So, how do you go about building
your shareholder base? Management
needs to do a lot of very proactive
work, but before anything, you need
to understand the profile of the perfect
shareholder and know that you are
marketing your stock to them.
I see many companies where
their shareholder base springs up
by accident. By the time companies
start to get strategic about their
shareholders, they have overhang all
over the place and a lot of work ahead
of them to get that overhang patriated
without taking a hit to the stock
price. It is much better to start with
a profile and a plan, however “better
late than never” holds true when it
comes to getting strategic about your
shareholder base.
Part of that profile is the
understanding of what appeals to
the target investor and part of it is
alignment with the vision Senior
Management has for the company.
Nobody will have a more grand

vision for the company than its
leadership. The problem is that it is
not uncommon for either none of that
vision or a watered down version to
make it to the shareholders.
Companies need to be working
at building relationships with their
shareholders. Instead they often get
short shrift or neglect. Never let
someone forget that they own your
stock.
Consider the psychological impact
of the mushroom treatment—being
kept in the dark and constantly fed
manure. Lack of information increases
volatility and the probability that
investors will make bad decisions.
Shareholders just need
some TLC. Communication
with your shareholders and
potential shareholders is critical.
I am dumbfounded at how many
companies do not understand this, but
shareholders can be “news junkies.”
Strong companies make their
messages more frequent and relevant
than the messages their shareholders
are getting elsewhere; be they from
analysts, the media, word of mouth,
etc.
Shareholders need that
reassurance, and they need the critical
information that only management
can give them—that the stock is
fairly valued and the company is on
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 25
a winning course. These messages
counteract their natural tendency
(exacerbated by a lack of information)
to sell at the wrong time.
Actively pursuing the type of
shareholders that are a good fit for the
company while transitioning out those
that are not (because they increase
volatility or exert influence in harmful
ways, etc.) is essentially a matter of
communication. Senior Management
can proactively hit all the watering
holes for their industry: put out news
releases, go to conferences, work on
getting analyst coverage, do webinars,
podcasts, blogs, whatever it takes to
get the word out.
First and foremost, management
needs to communicate the big picture
for the company. They need to exert
their leadership and show that they
have a vision for the company and
that it is compelling. Then this story
needs to be backed up with substance
and authenticity, which builds trust
among the shareholder base. Good
shareholder relations are built on trust
just like any relationship, and among
this group you want to guard your
credibility and reputation at all costs.
Things like goals and milestones
which are met through repeated
performance, integrity and openness
when tough decisions are made,
education about the market and the

company’s true intrinsic value. Being
a good corporate citizen can also help.
People like to associate with likeable
companies.
Remember that your existing
base contains your best evangelists.
Especially in growth companies, the
way to get the word out is through
word of mouth. This makes your
communications to shareholders
even more essential, because the
message you deliver to them is the
same message they will deliver to the
potential shareholders—their friends
and neighbors.
The saying goes: investors “buy
on rumors, sell on news”—Senior
Management needs an Investor
Relations and Public Relations
department that understands that
it can create both. Where possible,
the messages put out by your IR
and PR departments should tie in to
current events (in today’s world that
might include “green” initiatives for
example). You need to understand
how they work and what motivates
COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED
Page 26
them. Investors buy the story of
your company, but there has to be
substance to it. In other words, the
story is as important as the facts, but
it must be authentic–there has to be
something behind it.
Attracting these new shareholders
mitigates the risk that overhang
somewhere in your shareholder base
will unexpectedly hit the market and
cause a stock price catastrophe for
you. As you steadily increase your
volume, what you find is that volume
begets more volume.
As management, it is your
responsibility to make sure that when
people buy your stock that it is not a
one or two day trade; that these people
understand the vision that you have
communicated and are executing on.
17. Conclusion
Most people are simply not
aware of these principles. Senior
Management teams need to
understand their shareholders and
that means they need to understand
the psychology of investing. The
psychological perspective shows them
that even though the behaviors of
investors are irrational, they are in a
large measure, predictable. Can you
put a numerical probability to these
predictable events? I do not believe
you can. Business, and particularly
 Page 27

investing, is an art and understanding

human behavior is generally a
qualitative, rather than a quantitative
analysis. However, by understanding
the principles of the psychology of
investing, management teams can be
prepared to protect and grow the price
of the company’s stock.
Senior Management can catch a
glimpse into the minds of investors
and draw information from their
observations which can inform their
business decisions and push them
toward best practices. What this boils
down to is that understanding the
shareholders is critical for Senior
Management teams in understanding
their obligations to increase
shareholder value. Understanding
that people are not rational, that
psychology does matter, the market
is not random or efficient, and
that, while irrational, the behavior
of people is predictable because
it is motivated by greed and fear,
in essence, that understanding the
psychology of investing is essential to
understanding shareholders. 

COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED

 Page 28

Kirby Cochran is an educator, speaker and thought leader in the field of management and
finance and is a leading expert on capital structure and shareholder value. He has been teaching
new venture financing and entrepreneurship to graduate students for over a decade. Kirby
currently serves as an adjunct professor in the Finance department of the David Eccles School
of Business at the University of Utah. A veteran of the venture capital industry and a pioneer
of emerging approaches to raising capital, Mr. Cochran has been at the forefront of the growth
company financing and management trends for over twenty-five years.

In his new series of articles entitled Leadership Insight, Mr. Cochran reveals secrets used by
entrepreneurs and CEOs to drive growth in their companies. This information has always been
difficult and painful for Senior Managers to acquire, found only in the ruthless university of
experience and obtained through costly tuition at the school of hard knocks.

North Point Advisors, the firm founded by Mr. Cochran, advises growth companies on the
implementation of the best practices discussed in Leadership Insight for increasing shareholder
value.

ACKNOWLEDGEMENTS
Chad Jardine, my close associate and friend, was responsible for much of the leg work and
physical writing of this article. His contribution allowed the principles and practices of my
consulting process to come to life in written form and bring my insights, personal experiences and
unique “voice” to a new audience via the printed page.

COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED

1 Cochran, Kirby. 2008. What About Those Pesky Shareholders. (Another article in the Leadership Insight
series.)
2 Norquist, Grover. 2008. Tax Issues Front and Center in 2008. Real Clear Politics (March 9), http://www.
realclearpolitics.com/articles/2008/03/tax_issue_front_and_center_in.html (accessed July 15, 2008).
3 Benz, Christine. 2006. How Did Investors Really Do?: Investor Returns Help Capture Shareholder
Experience. Morningstar Fund Spy (November 13, 2006), http://news.morningstar.com/articlenet/
article.aspx?id=178504 (accessed July 15, 2008).
4 Spencer, Jane. 2005. Lessons From the Brain-Damaged Investor: Unusual Study Explores Links
Between Emotion and Results; ‘Neuroeconomics’ on Wall Street. The Wall Street Journal Online
(July 21, 2005), http://online.wsj.com/public/article/SB112190164023291519-rvYW40ZbTjek4HWC
DUyijBCigY8_20060720.html?mod=tff_main_tff_top (accessed July 15, 2008).
5 Armstrong, Robert, and Jacob Ward. 2008. Money Minded: How to Psychoanalyze the Stock Market.
Popular Science, February.
6 Rosenwald, Michael S. 2008. How Thinking Costs You: Behavioral Economics Shows That When It
Comes to Investing, People Aren’t That Smart. Washingtonpost.com (May 25, 2008) http://www.
washingtonpost.com/wp-dyn/content/article/2008/05/24/AR2008052400002_pf.html (accessed July
15, 2008).
7 Ibid.
8 Ibid.
9 Ibid.
10 Investopedia. 2008: Five Chart Patterns You Need to Know: Treasury Bill–T Bill. http://www.
investopedia.com/terms/t/treasurybill.asp (accessed July 15, 2008). Note: A short-term debt obligation
backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations
of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four
weeks), three months (13 weeks) or six months (26 weeks). T-bills are issued through a competitive
bidding process at a discount from par, which means that rather than paying fixed interest payments
like conventional bonds, the appreciation of the bond provides the return to the holder.
11 Benz, Christine. 2006. How Did Investors Really Do?: Investor Returns Help Capture Shareholder
Experience. Morningstar Fund Spy (November 13, 2006), http://news.morningstar.com/articlenet/
article.aspx?id=178504 (accessed July 15, 2008).
12 Gold, Donald H. 2007. Don’t Let Emotion Ruin Investing Choices. Investor’s Business Daily. (January
4, 2007) http://www.investors.com/editorial/editorialcontent.asp?secid=1100&status=article&id=252
803370965116 (accessed July 15, 2008).
13 Hackett-Dominguez, Wendy J. The Psychology of Investing: Understand the Emotions That Underlie
Your Investment Decisions. National Association of Residents and Interns. http://www.nari-assn.com/
news/psychology_of_investing.html (accessed July 15, 2008).
14 Bhatt, Gaurang. 2005. Greed, Stupidity and Market Follies. Boloji. (August 21, 2005) http://www.boloji.
com/rt2/rt186.htm. (accessed July 15, 2008).
15 Morningstar. Investing Classroom: Stocks 400. 2005. http://news.morningstar.com/classroom2/course.
asp?docId=145104&page=1&CN=COM
16 Bhatt, Gaurang. 2005. Greed, Stupidity and Market Follies. Boloji. (August 21, 2005) http://www.boloji.
com/rt2/rt186.htm. (accessed July 15, 2008).
17 Investor Psycholoyg. 1999. http://www.deanlebaron.com/book/ultimate/chapters/invpsy.html (accessed
July 15, 2008)
18 Caginalp, Gunduz. 2001. The Real Year 2000 Problem: Investor Psychology. The Journal of Psychology
and Financial Markets. 2 No. 1: 2-5.

COPYRIGHT © 2008 KIRBY COCHRAN. ALL RIGHTS RESERVED