The Crowd, Availability and Apple Inc.

I love it when the crowd gets it right.

The StockTwits community has been wildly bullish on $AAPL for at least 200 points as evidenced by the jubilant stream, bullish setups posted to Chartly, the victory laps and the sheer volume of messages in the name.

Conventional wisdom suggests that when the vast majority shares a strong positive sentiment, everyone is already long and the asset will soon falter as there is no one left to buy.

Sure this is sometimes the case but not as often as said wisdom implies.

Here’s why this is faulty thinking.

We tend to remember instances that are the most emotionally salient.  Kahneman and Tversky called this tendency the availability heuristic 37 years ago and they nailed it.  Previous instances that are the most easily recalled (or are available to memory) obscure objective recollection of the total set of previous instances.

So we neglect memories in which the crowd gets it right because they are not as striking to us.

Just because everyone appears bullish or an asset makes the cover of Time, as has been the case with $AAPL, does not necessarily infer the end of the trend.

We just remember it that way.