Do you recognize any similarities with the GPA question above? De Bondt and Thaler base their argument on the misapplication of representativeness. In effect, I suggest that investors treat past losers like high school students with low GPAs, and past winners as high school students with high GPAs. Notice that the prediction are particularly pessimistic when it comes to the low GPA students. People tent to predict that a student with a low high school GPA will end up with an even lower college GPA, indicative of a “kick ‘ em when they’re down” perspective.4 As we shall see in chapter 4, the same phenomenon also appears to be at work when it comes to stocks. The returns to past losers are exceptionally high, suggesting that investors become unduly pessimistic about of these stocks.