As an Investor, Stewart Is Just Like You and Me
Unlike Martha Stewart, most people aren’t rich, famous and looking at time in the slammer.
But as an investor, Stewart shares many traits with the rest of us, a Santa Clara University finance professor says in a new academic paper.
She chases fads. She blames her broker when things go wrong. She clings to losing stocks well past the sell-by date. She tears her hair when a stock she’s dumped starts to rally.
Professor Meir Statman hopes that his so-far unpublished paper -- “Martha Stewart, Normal Investor” -- will make a modest contribution to the literature of behavioral finance, a budding research area that seeks to explain why investors sometimes behave irrationally.
The findings are based on testimony and exhibits from Stewart’s trial last winter, when she was convicted of obstruction of justice in an investigation of her suspiciously timed sale of stock in biotech firm ImClone Systems Inc. She will be sentenced Friday.
Statman notes that when we hear people bragging about their stock picking, we’re often tempted to call their bluff and demand to see a list of trades.
“Polite people resist the urge,” he writes, “but prosecutors need not be polite.”
When FBI agents wanted a peek at Stewart’s holdings, they got a search warrant.
The records they seized show that the value of Stewart’s portfolio, heavily weighted with tech highfliers, plunged 47% between June 30, 2000, and Dec. 20, 2001 -- barely beating the Nasdaq composite index, which lost 52%. Twenty-three of her 35 stocks lost money, as the portfolio shrank to $2.39 million from $4.53 million.
Like many investors, Stewart suffers from regret when she views her decisions after the fact, writes Statman. She “surely wishes, in hindsight, that she had not bought the many stocks she sold at a loss in December 2001.”
“And most ironic,” he adds, “Martha Stewart surely wishes, in hindsight, that she had held on to her ImClone shares.”
Not only because she would have avoided prosecution: Lately, the stock has been trading about $20 higher than it was when she sold it.
