Monday, August 8, 2016

Quote of the day...

Long-time clients and readers know that I believe humility sits atop the list of traits of successful investors and, especially, investment advisers. Per Tim Richards in Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias (Wiley Finance):
... a study of professional traders exposed to fairly normal looking, but actually completely random, conditions concluded that many of the participants demonstrated illusion of control problems. Notably, the individuals who were most inclined to illusions of control were also most likely to perform the worst: they were more likely to see their successes as evidence of their skill, and to take more risks because of this— they simply failed to recognize the limits of their own abilities. In essence, the more deluded the individual trader was about their own ability to influence outcomes, the poorer their investing results were. Thinking we're in control when we're not is always a dangerous illusion. For investors it's a guaranteed way of losing money and the safest position to adopt is that in the short-term markets are always unpredictable. Many people find that almost impossible to accept: they shouldn't be allowed anywhere near stock markets.
(emphasis mine)

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