The Hindu Business Line : The Pike syndrome

Consider this: My friend's father bought some shares in mid-2005. His portfolio rose handsomely in just a few months. He could have made good profits had he sold his investment in early 2006. He, however, refused to sell, arguing with my friend (his son) that he would take profits after the market moved up further.

Unfortunately, the market declined sharply. So, his investments instead made losses. Later, as the market moved up, he was advised to buy more shares. But because of the losses, my friend's father decided not to invest in stocks again. My friend terms his father's behaviour as the Pike Syndrome. What does that mean?

Pike is a fish that has a strange habit; it eats smaller fishes. Suppose you drop smaller fishes in a glass jar and lowered the container into the water. The pike will lunge at the smaller fishes many times only to get hurt bumping against the glass jar. After sometime, if you were to drop the smaller fishes directly into the water, what do you think the pike will do? Devour its prey? Interestingly, the pike will not eat the smaller fishes. It will remember the previous incident when it bumped itself painfully against the jar. It suffers from the once-bitten-twice-shy attitude. It fails to understand that the situation is different now.

From this behaviour comes the term Pike Syndrome. Karl Albrecht, a management consultant, coined this term to reflect conditioned thinking.

My friend's father lost money due to his unjustified expectations. Rather than take advantage of a good buying opportunity later, he decided not to buy shares again. His behaviour is no different from the pike.

(The author is based in Ontario, Canada)

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