Overconfidence Bias – Investing Forever Advisory

Beware: This Strategy Could Cause You To Lose Your Shirt.

Investing is all about finding a balance that works for the long run.
Loss aversion can lead to underinvestment, but overconfidence can lead to concentrated bets, and as we’ll explore in this post, overtrading.
According to the research of Barber and Odean, overtrading can cost investors about 7% a year in returns on average. Yikes!

Human behavior is subject to pervasive bias that rational observers would consider to be irrational.
Such irrational behavior is consistent with how investors often approach the financial markets, which over time can degrade investment returns.
Therefore, it behooves investors to better understand common behavioral biases when making investment decisions.
As an example, overconfidence can lead investors to overestimate their ability to beat The Street.