From the course: Behavioral Finance Foundations

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Overconfidence and investing

Overconfidence and investing

From the course: Behavioral Finance Foundations

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Overconfidence and investing

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- [Instructor] Another important behavioral bias is overconfidence. The reality is most people tend to think that they're expert investors after just a short time investing. In other words, people think they can pick stocks, but in fact they can't. Investors also get rose-colored glasses when they're thinking about their performance. In a rising market, individual investors tend to feel they're geniuses because the results are good. My investments have doubled in the last few years. I'm so smart. And then they blame the market when things collapse. So they take credit when things go well, and they blame the market when things go poorly. This bias makes investors overconfident and hyperactive as traders. Let me show you what I'm talking about. So I'm here at Yahoo Finance, and I've pulled up a chart showing the performance of three major stock market indices, the S&P 500 in dark blue, the NASDAQ in purple, and the Dow…

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