Why do most people invest incorrectly?
People Are Overconfident
Many of the best research in the world has strongly indicated that people, in general, are overconfident. For example, when students are asked in a classroom “Are you a more skillful driver than your average classmate?” the vast majority say that they are better than average. When individuals are asked about their athletic ability almost everyone is also above-average. The same goes for investing, most people think they know how to invest, especially in periods of market booms when most assets are giving significant profits. Statistical studies have shown that investors tend to interpret investment success as a confirmation of their investment skills, even if their positive financial return was due to luck rather than skill (Statman et al. 2006). Investors often have problems differentiating good fortune with investment skills (Malkiel and Ellis, 2013)...
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