Thoughts on the Journey
Bean Counting
The Hidden Wisdom in the Jelly Bean Jar
by Robert J. Witt, CFP®
February 2014
Bean Counting
The Hidden Wisdom in the Jelly Bean Jar
W
ithout knowing it, each investor plays an integral role in determining a
company’s stock price. Whether it’s from the helm of a trading desk or behind a
shopping cart in a grocery store, most buyers accept price as an accurate estimate
of current value and use the information as they buy and sell. In the exchanges, as
investors trade stocks, a vast amount of dispersed information is aggregated and
quickly driven into security prices. Information is integrated and market participants
compete against one another, driving security prices to a fair value.
As we think about efficient markets, two basic truths come to the surface. 1.) The
combined knowledge of all participants who have traded a specific stock are already
included in the price. 2.) Trying to anticipate the market produces anxiety and
undue risk.
To further examine the conclusions listed above, we decided to test our own clients
by combining a jar of jelly beans with their collective knowledge and experience. To
start the test, we placed jars of jelly beans throughout the office and asked our clients
to guess how many jelly beans were in each one. The results ranged far and wide
from the lowest guess of 500 to the highest of 4,800 and many in between. All of
the guesses (50 in all) averaged 1,734 jelly beans. The winning guess was only 38 jelly
beans shy of the jar’s actual total of 1,696!
To check our findings, we road tested this experiment at other events and had
similar results-the average of all the guesses was typically the closest to the actual
result, usually by just a few jelly beans. It seems the collective wisdom of a group is
greater than any individual. In this instance, one of us is not smarter than all of us.
If you’d like to learn more about this phenomenon, read “The Wisdom of Crowds,”
a best-selling book byNew Yorker business columnist James Surowiecki.

Much the way the average number of guesses is the closest to the actual price;
markets integrate the combined knowledge of all the participants into the current
price on a grander scale. For example, in 2012, the average daily number of trades
was 39 million representing $194 billion of daily dollar volume. The collective
wisdom of these buyers and sellers more powerfully drove the information into
security prices and forced current prices to be the best representation of all available
information and opinions.
The good news is that you don’t need a crystal ball or the ability to guess the correct
amount of jelly beans to have a successful investment experience. The market has it
all ‘baked in the cake,’ or priced in this case. The next time you read an investment
article about how to capitalize on current market trends, or a talking head boasts
about the next “play” in the market, just think of the jelly bean jar and know that a
company’s stock price can tell you more than you think.
Disclaimer: Huber Financial is an investment advisor registered with the Securities and Exchange Commission.
This material is for general educational purposes only and is not intended to provide investment or tax advice.
Always consult your investment or tax professional for advice on your particular situation. All expressions of
opinion are subject to change without notice in reaction to shifting market conditions. Investing involves risk
including the possible loss of principal. Past performance does not guarantee future results.
© Copyright 2014. Huber Financial Advisors, LLC. All rights reserved. Unauthorized copying, reproducing,
duplicating or transmitting of this material is prohibited.
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An SEC Registered Investment Advisor
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