1. What types of biases prevent analysts from updating their forecasts quickly?
2. Can investors exploit these analysts' biases even now? Why or why not?
3. Why do the analysts behave in a less sophisticated manner than institutional investors?
4. Are there other market participants who exhibit similar behavior? Are there any pricing implications of their slower reaction?

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Tremblant Capital Group The best way to understand the emergence of fashion trends, the ebb and flow of crime waves, or, for that matter, the transformation of unknown books into bestsellers... is to think of them as epidemics. Ideas and products and messages and behaviors spread just like viruses do. - Malcolm Gladwell, The Tipping Point The fall of 2008 was a challenging time for Brett Barakett, founder and chief investment officer of Tremblant Capital Group, a New York-based hedge fund. As world equity markets collapsed in September and October, the fund had seen the market price of many of its core positions fall. It was now late October, and Barakett was particularly concerned about the fund's position in Green Mountain Coffee Roasters (GMCR), a roaster and distributor of premium coffees which had recently acquired the Keurig brand of single-serve coffee and tea. Sales of the Keurig system and its replacement capsules constituted 39% of GMCR's sales in fiscal year 2007, and 51% in fiscal year 2008. GMCR had performed spectacularly between 2005 and early 2008, outperforming the S&P 500 by more than three hundred percent. However, since Tremblant established its position in late 2007, the stock price had lagged. While the price of GMCR stock had increased by more than 35% in December 2007, GMCR had fallen by more than 44% since its high of $44.09 on June 16, 2008, closing at $24.51 on October 24, 2008 (see Exhibit 1). Tremblant had increased its position in GMCR during the first half of 2008, as the investment team's conviction in the position grew. By October 2008, GMCR was one of the fund's core positions (see Exhibit 2 for Tremblant's other positions, and Exhibit 3 for the net long and short exposures of the core fund). While Barakett was confident in his team's research, the recent performance of the stock worried him for a number of reasons. An independent research report had graded GMCR poorly on its earnings quality. The report had questioned whether GMCR's expansion in operating margins had been driven by accruals-often a red flag for accounting gimmickry. At the same time, the financial newspaper Barron's had started to run a series of articles questioning GMCR's high stock price, highlighting GMCR chairman Robert Stiller's sale of $5.7 million of stock in May. Last, some analysts had been arguing that the popular Keurig brand was vulnerable to attack from larger and better capitalized rivals such as Kraft, which had been marketing a similar single-serve coffee system. Reflecting these negative sentiments, GMCR had become a popular short position for many other hedge funds. Over the past few months, record high short interest had developed (see Exhibit 4). By late September 2008, more than 36% of GMCR stock was on loan to short sellers, compared to an average of approximately 3% for the Russell 1000. Tremblant Capital Group The best way to understand the emergence of fashion trends, the ebb and flow of crime waves, or, for that matter, the transformation of unknown books into bestsellers... is to think of them as epidemics. Ideas and products and messages and behaviors spread just like viruses do. - Malcolm Gladwell, The Tipping Point The fall of 2008 was a challenging time for Brett Barakett, founder and chief investment officer of Tremblant Capital Group, a New York-based hedge fund. As world equity markets collapsed in September and October, the fund had seen the market price of many of its core positions fall. It was now late October, and Barakett was particularly concerned about the fund's position in Green Mountain Coffee Roasters (GMCR), a roaster and distributor of premium coffees which had recently acquired the Keurig brand of single-serve coffee and tea. Sales of the Keurig system and its replacement capsules constituted 39% of GMCR's sales in fiscal year 2007, and 51% in fiscal year 2008. GMCR had performed spectacularly between 2005 and early 2008, outperforming the S&P 500 by more than three hundred percent. However, since Tremblant established its position in late 2007, the stock price had lagged. While the price of GMCR stock had increased by more than 35% in December 2007, GMCR had fallen by more than 44% since its high of $44.09 on June 16, 2008, closing at $24.51 on October 24, 2008 (see Exhibit 1). Tremblant had increased its position in GMCR during the first half of 2008, as the investment team's conviction in the position grew. By October 2008, GMCR was one of the fund's core positions (see Exhibit 2 for Tremblant's other positions, and Exhibit 3 for the net long and short exposures of the core fund). While Barakett was confident in his team's research, the recent performance of the stock worried him for a number of reasons. An independent research report had graded GMCR poorly on its earnings quality. The report had questioned whether GMCR's expansion in operating margins had been driven by accruals-often a red flag for accounting gimmickry. At the same time, the financial newspaper Barron's had started to run a series of articles questioning GMCR's high stock price, highlighting GMCR chairman Robert Stiller's sale of $5.7 million of stock in May. Last, some analysts had been arguing that the popular Keurig brand was vulnerable to attack from larger and better capitalized rivals such as Kraft, which had been marketing a similar single-serve coffee system. Reflecting these negative sentiments, GMCR had become a popular short position for many other hedge funds. Over the past few months, record high short interest had developed (see Exhibit 4). By late September 2008, more than 36% of GMCR stock was on loan to short sellers, compared to an average of approximately 3% for the Russell 1000.

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