From Albert Bridge Capital: We have observed that decision-making biases are often driven by a natural tendency of herding among investors and analysts covering the stock. There are many reasons why people will "herd", and we believe herding can drive other behavioural biases. The literature (and common sense) also suggests that the phenomenon is more likely when there are many analysts following a stock than when there are just a few. The logic follows that we might expect to see more alpha-generation opportunities in the larger-cap, more well-followed names. The implication is that there is at least the potential that the consensus investor is more easily observed as companies become larger and more followed, but also that Mr Market may be more prone to errors of groupthink in these larger-capitalisation names. We might also expect that names where there is heavy analyst coverage are more ripe for biases than names which don’t capture much attention. Conventional wisdom finds it e...
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