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Stock Strategist

Why Popular Stocks Are a Sucker's Bet

A recent study points out, yet again, how fickle we humans are.

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Any student of the market is by necessity a student of human psychology and the behavior of crowds. With that in mind, consider a study published in the Feb. 10 issue of Science magazine. The authors, Matthew J. Salganik and Peter Sheridan Dodds of Columbia University, and Duncan J. Watts of the Santa Fe Institute, studied how people judged music when left to their own devices, versus how they judged music when they knew how popular the music was among their peers. It offers a nice demonstration of people's suggestibility and dovetails with our own thoughts about market behavior and the behavior of crowds.

Can you guess the results?

Haywood Kelly, CFA has a position in the following securities mentioned above: BRK.B, EBAY, DELL. Find out about Morningstar’s editorial policies.