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Psychology in action: The Twitter frenzy continues.

September 11, 2014

To me as a psychologist-investor Twitter is a starving bird that continue to change advertizing tunes with the hope that investors continue to feed it. They do. Why? System 1 heuristic expectation is reigning, not the calculated expectation of System 2. For that you need to know how to plug Kahneman’s System 2 into the advertizing grid. (I hope that financial gamblers will now hit Google and type “Kahneman, System 2.”)

If you are intent on making big money in the market (not just think you do), checkout my other postings on decision-making. System 2 thinking selects for analysis only data (variables) that increase the probability of predicting an outcome (repeat this sentence untill you get it cold turkey!). Let’s use Twitter data as an example of decision-making that works about stocks, not a decision-making that raises psychological expectation about stocks going up! One day Twitter will stop singing alluring tunes and start laying golden eggs, but not now. Today,  Twitter only plays on your false expectation by making “good-looking” changes.

For the next paragraph I will refer to my book The Psychology of Investing: how to play the game and win.” At Price/Earning (P/E) of 506 Twitter is at market exuberance without substance (p 26). A share price hundreds of times higher than earning is a bad fire (Page 137). Twitter’s PEG score is 4.54, too high. A predicted high PEG score has an inflated G (Page 137).  Twitter’s G at 111% per year is 10 times higher than the Standard & poor G and 6 times higher than the G of Social Media!  Topping all this dismal data with a dismal earning of only 1 or 2 cents per quarter (as compared to Facebook’s 40 cents per quarter!) and System 2 says, don’t put your money on a deer’s horn!  

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