I’ve posted Entry #252 to my Valuation-Informed Indexing column at the Value Walk site. It’s called Our Beliefs About How the Stock Market Works Will Change Following the Next Crash.
Juicy Excerpt: I read a bit more about the Ashe study on the internet and came across an aspect of it that I overlooked in my earlier article that I find highly encouraging. The power of the false responses to pressure real study participants to give wrong answers was greatly reduced when even one of the fake study participants gave an answer at odds with the answers given by the other fake study participants.
We give in to peer pressure only when it appears sure of itself. When all of the fake study participants are saying the same wrong thing, we find it very hard to stick to our guns and report accurately what our eyes tell us to be the truth. But if just one of our peers offers a different take, we gain the confidence we need to stand up to the peer pressure ourselves.
The suggestion of the Ashe research s that we only need a small percentage of us to work up the courage to challenge the Buy-and-Hold dogmas and the rest of us will feel emboldened to express our doubts too. Peer pressure is a powerful force in stock investing. But it is a power that can be overcome quickly once a stock crash wipes out much of the life savings of millions of investors.