The ONE mental block that is preventing your investing success
This could be the reason why.
You may have your pre-conceived notions, such as “I’m good at soccer, basketball, investing etc…”
But how do you know if that’s true?
Have you gone through a long tail event before coming to this conclusion?
Introducing the Dunning-Kruger effect
The Dunning-Kruger Effect is a cognitive bias, where people overestimate their ability to perform certain tasks. The inverse also holds true, where experts underestimate their perceived ability.
Dunning-Kruger “has more to do with being misinformed rather than uninformed.” – David Dunning
Misinformation can have more fatal consequences than ignorance.
The Dunning-Kruger effect can cause irreversible harm in a positive feedback environment, like the one we saw in 2020.
In 2020, we experienced the quickest ever rally in stock market history.
It was the year for long WFH beneficiaries like tech, and short experiential services like travel and hospitality.
If you were invested in growth stocks during this period, you would have made money (and lots of it).
A new investor who entered the stock market in 2020 might feel like a genius. They must’ve been thinking to themselves “Why didn’t I invest earlier?”
Then 2022 arrived, and the stock market honeymoon came to an end. New investors who entered the market in 2020 not knowing what they were doing were left with their pants down.
It’s likely that these are the same people who have left the stock market, never to be seen again.
Such a pity.
“In the short-run, the stock market is a voting machine. Yet, in the long-run, it is a weighing machine.” – Warren Buffett
Think Again
The next time you think you’re good at something, think again. Remind yourself of the Dunning-Kruger effect.
The decisions that you make are influenced by the hardwired biases of the mind.
Don’t let biases influence your decision-making, read both sides of the argument with an open mind.
The wise know their weaknesses too well to assume infallibility; and he who knows most, knows best how little he knows — Thomas Jefferson