There are a few predictive reflexes investors have facing certain situations. I call that a “trade combo”. This is a set of factors that, when combined, will push investors in a specific situation using cognitive biases to justify their trade. One of the classic trade combos is the following:
A company that has been around for a while with brands known around the world. Investors with prestigious background investing large amount of money. A steady dividend payment and an increasing yield. A steady stock price drop (more than -20%).
This trade combo is most likely to convince several investors to invest. This is a “deal” because the company is too big to fail, it is supported by strong investors, the yield is good, and earnings are up. What investors decide to ignore is that sales are sluggish and there are no vector growths.
