Overconfidence can lead to poor investment outcomes from "summary" of Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing by Hersh Shefrin
Overconfidence is a common behavioral bias that plagues many investors. It refers to the tendency for individuals to overestimate their abilities, knowledge, and skills, particularly when it comes to making investment decisions. This overconfidence can lead investors to believe they have an edge in the market, causing them to take on excessive risk or make rash decisions without conducting thorough research or analysis. When investors are overconfident, they may trade more frequently than necessary, incur higher transaction costs, and deviate from their long-term investment strategies. This can result in poor investment outcomes, as they may buy high and sell low, chase hot stocks, or fail to adequately diversify their portfolios. In essence, overconfidence can lead investors to make suboptimal decisions that ultimately harm their financial well-being. In addition, overconfidence can also lead in...
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