“Hazing” is a rather loose term to describe “the practice of rituals involving harassment, abuse, or humiliation used as a way of initiating a person into a group.” We most frequently apply this when a local fraternity violently abuses a prospective member, as in the case of the death of University of Santo Tomas (UST) law student Horacio “Atio” Castillo III.
However, this is a global phenomenon going back literally thousands of years. Initiation rites of passage are found in nearly every society and are justified for a variety of reasons. The ancient Hebrew circumcision ritual is an example, as is the scarification ceremonies when men of the Sepik tribes of Papua New Guinea have their backs cut to resemble the markings of the crocodile.
Research studies about hazing from the modern upper-class boarding schools of England to the gangs in the slums of South Africa were instrumental in creating the theory of cognitive dissonance first proposed by American social psychologist Leon Festinger. This is the mental discomfort or stress experienced by a person who simultaneously holds two contradictory beliefs. In other words, while it is a natural survival instinct to avoid harm and pain, there is also the desire to endure that pain to be a part of the group.
While hazing may be an extreme term to apply to stock-market investing, the cognitive dissonance that keeps hazing a relatively common practice in our “enlightened” modern world also creates stock-price movement. Should I buy or sell?
To the outside observer, subjecting oneself to even the potential of physical abuse to be “one of the boys —or girls as the case may be since hazing is not limited to males—seems completely irrational. To someone on the “inside,” it seems a completely sensible thing to do.
Cognitive dissonance—the concept of being torn between two opposites—has been applied across a wide range of human experiences, from politics to consumer behavior. Do we go with “You get what you pay for” to justify buying at a higher price? Or with “Items on sale are always the best value”? There is obviously no right answer. Yet, all of us have stood in the department store in a stressful state of cognitive dissonance wrestling with a “To buy or not to buy” decision.
The Philippine Stock Exchange has been in a state of extreme—historically speaking—cognitive dissonance for weeks.
Market capitalization is the value of the shares of a listed company computed by multiplying the total number of outstanding shares by the current market price. The market value of Ayala Corp. at the current price is approximately P650 billion.
During the past six weeks, the weekly change in the share price of Ayala Corp. has been: down 3.19 percent, up 0.87 percent, up 0.96 percent, down 4.29 percent, up 8.96 percent, and down 3.20 percent. Note that the net change during this period is 0.11 percent or basically nothing.
However, each 1-percent price movement changes the stock market value of the company by P6.5 billion. Two weeks ago, the value of Ayala Corp. increased by P58 billion. To put that number in perspective, in 2017 the total daily output of the Philippine economy—measured by the GDP—was about P50 billion.
To the outside observer, these price movements seem completely irrational. To someone on the inside, it seems a completely sensible thing.
However, people caught in a period of cognitive dissonance are motivated to reduce the discomfort of the situation. So fear not. Soon the market will clearly decide which way it wants to go. And when it does, ride whatever wave that happens to be.
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