The Asch Experiment (NYSE: BBY) (Nasdaq: NFLX) (NASDAQ: SIRI)

NEW YORK - Investors may wonder why stocks move around sporadically and why many people often do not have a concrete opinion on whether a stock is overvalued or undervalued. Investors are asked everyday to price a security and some fail the test. However many people believe the market price is the right price, meaning they have great difficulty in finding undervalued/overvalued stocks. The argument is simply the majority must know what they are doing.

Wedbush Securities analyst Michael Pachter said of Best Buy, "we don't really know for sure whether they will continue to lose share. It is probably prudent for most investors to just avoid having to make that call and find something else to invest in." Pachter is likely just regressing to the mean that a stock is bad if the market says its bad and is good if the market says it is.

Experimenters led by Solomon Asch asked students to participate in a "vision test." where they would identify which line was longer. All the subjects but one were in on the experiment. They were to match the line shown below with either A, B or C. They would purposely misidentify the matching line. It was found that 33% of subjects conformed to the incorrect majorities opinion. For example: the subject would say the line on the left is as long as line B when it is clearly the same length as line A.

Just kidding. The experiment plays out in the stock market daily, with people mis-pricing stocks where Mr. Market gives investors the chance to buy securities at an incorrect price but many people do not believing the market is always right.

Mr. Market currently says that Netflix, Best Buy and Sirius Satellite Radio have essentially the same price despite large variations in size, and profit.

However we would like you to conform to our opinions.

So please click here to read our Best Buy Stock Report

and here to read our Netflix Report