Watch: Behavioral finance says sell Netflix

Published Thu, Aug 13 201510:20 AM EDTUpdated Thu, Aug 13 201510:38 AM EDT

CNBC "Halftime Report" trader Josh Brown joined CNBC Pro in a special Q & A to address investment questions from subscribers. He trades Netflix, Alphabet and more. Watch the highlights below. Josh Brown, CEO of Ritholtz Wealth Management, says investors should watch out if hot momentum name Netflix keeps falling because it may be a while before the selling stops. One reason for that theory relates to behavioral finance, which holds that investors are least inclined to sell well-performing stocks with $100 price tags like Netflix because they don't want to buy these shares back at those high prices if the bull market resumes. "Behaviorally speaking, these high priced names are the last that get sold," said Brown during the Q & A session. "People tend to sell high-priced stocks with most hesitancy because they know those are the names they'll be least inclined to buy back at a triple-digit price." So these names hold up until the final stages of a bull market, but then can fall a long way since they are among the least likely to be bought back by burned investors. Ticker NFLX currently trades at around $120. Brown thinks investors are also attached to these high-flying stocks as their outperformance is often a source of pride for investors. However, that can be problematic when the market turns south and investors run for the exit, taking aim at the names with questionable valuations. So far this year, shares of Netflix are up nearly 150 percent compared with a return of 8 percent for the S & P consumer discretionary sector. The stock also has one of the highest price-per-earnings multiples in the sector at 270, compared with a ratio of 21 for the group. Source: FactSet Read More Is Netflix the next momentum name to fall? But when the fever breaks and is followed by a technical breakdown, that psychology wears off, leading to a max exodus in the stock. As an example, Brown points to shares of Keurig Green Mountain (GMCR) which plunged 30 percent last Thursday, a day after reporting weak earnings. Josh Brown is the leader of CNBC Pro's "Halftime Report" Portfolio Competition, up 9 percent this year. View all his top picks here . Disclaimer

Netflix app on a mobile phone

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CNBC "Halftime Report" trader Josh Brown joined CNBC Pro in a special Q&A to address investment questions from subscribers. He trades Netflix, Alphabet and more. Watch the highlights below.

Josh Brown, CEO of Ritholtz Wealth Management, says investors should watch out if hot momentum name Netflix keeps falling because it may be a while before the selling stops.

One reason for that theory relates to behavioral finance, which holds that investors are least inclined to sell well-performing stocks with $100 price tags like Netflix because they don't want to buy these shares back at those high prices if the bull market resumes.