Jan 15 (Reuters) – If you are like most investors, you
probably mistake catching a wave for being able to swim fast.
And considering that you also very likely can’t swim fast or
invest well, that is a dangerous combination.
It is easy to observe that people are more likely to give
themselves credit for good investment returns while blaming
their reverses on things outside their control, but now at last
we have data.
A new study by Dutch academics Arvid Hoffmann and Thomas
Post of Maastricht University (here)
was able to quiz customers of a discount brokerage about how
good they felt they were while also gaining access to their
trading records. The results are startling, if not
surprising. Investors who beat the median return agree more with
a statement asserting that their performance reflects skill, and
the higher their returns go the more they agree. What’s more,
overall market returns have no bearing on how investors rate
themselves, suggesting they invest in a bit of a psychological
This destructive human foible, sometimes called the
self-attribution or self-serving bias, may well help us to
survive a hostile world and still keep plugging. That might have
been a useful trait when looking for berries or animals to eat
thousands of years ago, but it has the potential to be highly
destructive when it comes to managing finances.