References (8)



Martha Stewart, Normal Investor

Meir Statman

Santa Clara University - Department of Finance

October 2004

We listen to investors brag about their winning stocks and want to ask "May I have a list of all the stocks in your portfolio?" Polite people resist the urge but prosecutors need not be polite. The portfolio that Martha Stewart revealed to prosecutors and the jury at her trial is a portfolio of normal investors, containing both winners and losers, and the investment behavior she revealed is normal behavior, affected by cognitive biases and emotions. Nothing illustrates these better than the cognitive bias of hindsight and the accompanying emotion of regret.

Martha Stewart surely wishes, in hindsight, that she had not bought the many stocks she sold at a loss in December 2001. Martha Stewart surely wishes, in hindsight, that she had accepted the prosecutors' offer of a plea bargain. Last, and most ironic, Martha Stewart surely wishes, in hindsight, that she had held on to her ImClone stock. The shares she sold for less than $60 in December 2001 could have been sold for more than $85 at the end of June 2004.

Number of Pages in PDF File: 16

Keywords: Martha Stewart, investor behavior, cognitive biases, emotion, disposition effect

JEL Classification: G11, G14

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Date posted: October 15, 2004  

Suggested Citation

Statman, Meir, Martha Stewart, Normal Investor (October 2004). Available at SSRN: http://ssrn.com/abstract=603662 or http://dx.doi.org/10.2139/ssrn.603662

Contact Information

Meir Statman (Contact Author)
Santa Clara University - Department of Finance ( email )
500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4147 (Phone)
408-554-4029 (Fax)
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