Being Super Confident Is Good, Right? Not When It Comes to Investing
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If you made it out of 2022 unscathed despite it being the worst year for the stock market since 2008, you may be feeling smug about your investing skills. You're not alone in cheering if you've ever picked a stock that soared or patted yourself on the back for jumping on a hot trend, like meme stocks or crypto, at precisely the right time.
But don't get too cocky.
"There's a lot of overconfidence bias out there amongst investors," says Marlena Lee, head of investment solutions at Dimensional Fund Advisors. "Pretty much anyone who thinks that they can pick an individual stock, or pick up an investment trend or fad or time the market, I think, is very likely susceptible to overconfidence."
If an investor has gotten lucky, it can be hard to distinguish that random good fortune from skill, she adds. There's a lot of evidence that even Wall Street professionals can't reliably beat the markets — and, sorry, but chances are low that you know more than they do.
While many investors implement a long-term "buy and hold" approach, if you're tempted to try to time the market, you may want to think again.
The psychology behind overconfidence bias
