Don’t Let the Past Determine the Future Overreactions Lead to the Miscommunication of Information

Irrational Behavior Creates Inefficiency

The reason [GE traded at $55 in 2001] was because I’d estimate that 95% of the dollars invested in the U.S. stock market were either indexed or closet indexed – people had to own it to keep up with the benchmark. If they thought it was overvalued, their response would be to maybe buy only a 3% position rather than the 4% weighting in the benchmark. That’s the type of irrational behavior that can create inefficiency.