The financial decisions we take are just like the decisions in a supermarket. Our urge to own shares in the Apples or the Bank of Americas is controlled by our intuitive responses just like our urge to Coca-Cola is slightly different than our urge to buy Pepsi. The difference is not argumental; it is not in the taste (in fact Pepsi tastes better than Coke) it is the associations to freedom and happiness. To the great detriment to people in dark suits calling themselves investment bankers, we choose our investment portfolio the same way. Maybe this is why they need the dark suits and the posh offices...
Experiments with lobotomized patients show that we make decisions based on short-term rewards and scramble like crazy to come up with credible post-decisional arguments. This is where financial theory comes in. Financial theory does not explain decision-making. We are not rational. Financial theory is a great, complicated fictitious story.
High quality earnings are important and a part of our subconscious decision making. The risks in getting involved with cash strapped companies are for most people intuitively horrendous and discarded. So at the end of they day we have thrown out the high risk candidates and look for companies we are really impressed by.
We want to be proud of our portfolio just like a university graduate wants to be proud of a job offer from the right firm.
There are very strong similarities the perspective of talents and investors, and between suppliers, customers and suppliers: We are totally driven by subconscious perception.
Reputation is important and should be on top of every CEO and board agenda. Ignoring the black box would enable happier stakeholders and long-term prosperity for a lot of people. Reputation, reputation, reputation.