Chills ran down my spine. I had just finished reading about investors losing their entire life savings. These people had doubled down and wagered everything on a single company. A single stock. And they lost everything. This is a fascinating read. As I sifted through the carcass of an online trading forum where this drama played out over 500+ pages, I couldn’t help but notice the story and the lessons that unfolded as the days went by. The company was GT Advanced Technologies.
I’ve been engrossed for weeks sifting through the forums where investors gathered and chatted about GT Advanced Technologies. I first ran into this story over at Islands of Investing. From there, Jason pointed me over to Joshua Keenons blog. I’ve been obsessed with it ever since. Ask my wife. All I keep telling her about is how fascinating it is to go through page after page of this disaster story.
GT Advanced Technologies was suppose to supply Apple sapphire screens for the new iPhone 6. They signed a horrendously one-sided deal with Apple and bet the farm. And they missed the mark. And then they went bankrupt. And people lost a lot of money. Some of them lost everything. Everything.
Going through the forums, and in hindsight, one can see cognitive and behavioural biases everywhere. Fear of regret. Short-sightedness. Massive amounts of cognitive dissonance. Overconfidence. Anchoring. Representativeness.
Here is a screenshot of a poster in that forum pointing out all the red flags that were “obvious” in hindsight:
Now, in all fairness, hindsight is hindsight. But I think he has a valid point that if you really did conduct your full due diligence, there should have been warning signs that made you think twice about betting everything on this one stock.
I’ll give you a couple of the most gut wrenching screenshots from that forum:
If you really want to see the full spectrum, just go over and read the forum thread.
What I found truly fascinating was that it was only on September 10, at page 338, the first post appeared that correctly analyzed what had occurred with the whole debacle. But the most fascinating aspect was that this poster knew logically that he was 95% correct, but still had that tiny 5% emotional-irrational side of him hoping that his logic was incorrect:
Though this poster correctly analyzed what was going on, it doesn’t appear that most took this analysis very seriously, especially the investors who ended up losing everything. So what’s going on? Why did so many people end up losing everything?
I think the fundamental, root cause is that we tend to overestimate our levels of intelligence.
Let me ask you: did you goto college/university?
Do you believe you are intelligent? At least more intelligent than the average person?
Now, be truthful to yourself. What was your knee-jerk answer?
Ok, now look at this diagram:
If a ball is dropped into this tube, which path will the ball continue on once it exits the tube: A, B, or C?
While there are a myriad of factors at play in the drama that unfolded among investors in that forum, I think too many people overestimated their intelligence. I think too many people overestimated what they thought they understood. And actively immersing in an environment where social proof amongst peers reinforced confirmation bias was a dangerous situation to be in.
Especially in order to think critically and independently.
Perusing through that forum thread on GT Advanced Technologies is a must read for any investor who is considering investing in individual stocks or who is cluelessly investing in individual stocks.
Don’t fool yourself into thinking you are more intelligent than you are. There is no shame admitting that sometimes we just don’t know the answer.
And the answer for the question above? It was B. And it has to do with basic Newtonian principles of motion. How many of you got it right?
And for mild comic relief, I leave you with this:
I rest my case.