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Overconfidence can lead to poor investment decisions from "summary" of A Random Walk Down Wall Street by Burton Gordon Malkiel
Overconfidence in one's ability to predict the future direction of the stock market can have detrimental effects on investment decisions. When individuals believe they possess superior knowledge or insight, they may become overly confident in their ability to pick winning stocks and time the market successfully. This overconfidence can lead investors to take on excessive risks in the pursuit of higher returns, without fully considering the potential downside. In reality, the stock market is inherently unpredictable, and even the most seasoned professionals struggle to consistently outperform the market over the long term. By succumbing to overconfidence, investors may ignore the principles of diversification and risk management, focusing instead on a few high-risk, high-reward opportunities. This can expose their portfolios to unnecessary volatility and potential losses. Moreover, overconfidence can lead investors to engage in frequent tra...
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