In 2020, American driving specialist AAA released a study on one of the most dangerous things on U.S. roads …
In the AAA study, researchers found that when autonomous driving capabilities are marketed as self-driving, drivers become overconfident in the vehicle’s ability to protect them in dangerous driving situations. As a result, they were more comfortable eating, drinking and using their cell phone while driving. But the reality is vehicles aren’t fully autonomous yet; the self-driving features are there to simply assist drivers, not completely navigate the roads for them.
Now, overconfidence isn’t limited to poor driving decisions, it’s also one of the most dangerous mistakes in investing.
Researchers have studied this for years in the field of “behavioral finance.” What they find is this:
Psychology is responsible for many of our worst blunders — if left unchecked. That’s what we’ll be discussing here in Market360, in our week-long Peak Performance Series.
Each day, I’ll detail the human behaviors that can cost investors big money … how you can neutralize their costly effects… and the rewards of overcoming them.
The human brain is a marvelous tool for creating feats of art, music, language, and engineering, but it’s a terrible tool for investing.
The more you know about the workings of your own mind, the “bugs” inside it, and how they work against your investment performance, the more you can develop strategies to mitigate the negative effects of those bugs.
In today’s essay, we’ll talk about the challenge investors and drivers alike face: Overconfidence. I’ll detail overconfidence bias, how it works, and how you can neutralize its negative effects.
Let’s get started.
Confidence vs. Overconfidence
First, let me get something out of the way: Confidence is a good thing.
Without it, you wouldn’t do many of the things that make life great. Whether it’s applying for a job, asking someone for a date, or even investing money in the market, confidence is part of what gets you to a great result.
However, overconfidence refers to the phenomenon that peoples’ confidence in their judgments and knowledge is higher than the accuracy of these judgments.
Put more simply, overconfidence blinds you to the reality of your ability and the circumstances around you.
Maybe you’re a fan of the popular television show, American Idol? During the auditions there are always a few people whose confidence in their singing ability goes way beyond their actual skill — often leaving them on the receiving end of some ridicule.
These singers do not listen to criticism, and often end up accusing the judges of bias against them.
Overconfidence can affect your investing life any number of ways, and sometimes it can take time to experience the consequences.
For instance, the latest Retirement Confidence Survey by the Employee Benefit Research Institute found that 2 out of 3 workers are confident they are doing a good job saving for retirement and know how much they will need to save to live comfortably, but only 44% have actually tried to calculate how much money they will need.
If these workers feel confident about their retirement savings, but haven’t calculated how much money they will need, they’re acting without supporting evidence. And without “crunching the numbers,” they may never build a big enough nest egg to enjoy a comfortable retirement. That’s a lesson ALL of us should heed.
How Do You Combat Overconfidence?
I’m a numbers guy. Always have been. Since I was a kid, I’ve loved math and I knew that math was the right way to understand the world.
Said another way, I depend on evidence for my decisions.
And math and technology combined have helped me create a tremendous amount of wealth for myself and my subscribers.
I depend on an objective set of criteria that signals what I should buy, when I should buy it, and when I should sell and collect the profits.
But I still wasn’t satisfied. I knew that math and technology could lead me to find the stocks that are poised to soar in a much shorter period of time.
We’re talking about opportunities like Baozun (NASDAQ:BZUN). That stock had been flat for months, but my system picked up on the change in company performance, so I did some did some final vetting and decided it was time to “get in.”
Over the next 5 months, the stock soared 159%.
But then, things changed again …
One of Baozun’s precursors dropped off. My system noticed the drop in performance, and I confirmed it: it was time to “get out.” When you’re sitting on a great profit like the one we had, that can be a tough call to make. It’s all too easy to become too emotionally invested — too stubborn to sell. But numbers don’t lie … and you’re usually better off heeding them.
Sure enough, over the next several months, Baozun’s stock started heading down. Luckily, because I’d seen the signs, my subscribers and I were well out of harm’s way! And that’s just one stock — just the tip of the iceberg.
I’ve been working on this project for years, and I recently shared it with everyone.
I call this effort “Project Mastermind.”
Even just a few years ago, this kind of analysis seemed like a dream.
But using modern technology and loads of data, I am able to identify which stocks are ready to skyrocket, and the gains can come in months, not years!
Gains like these can be a retirement game changer. A chance to collect triple digit returns in a short time. And, it’s all based on facts!
After extensive analysis, I isolated the eight key qualities that these super-performing stocks shared … and I developed a system for riding them.
As I noted earlier, as wonderful as the human brain is, it is a terrible tool for investing. It’s like trying to eat soup with a fork.
With Project Mastermind, I’ve taken overconfidence out of the picture; in fact, I’ve removed ALL human biases. Investing decisions are made on cold, hard data.
And a special set of that data is signaling the stocks set to soar … and in a hurry!
You can click here to watch my Project Mastermind event, where I gave everyone a glimpse at my system and revealed my number-one stock pick.
Acting on data is the ultimate hedge to overconfidence. And with Project Mastermind, I can put all the facts right into your hands.
You’re not going to want to miss out. Because of the livestock pick that’s in there, we can only make it available for a little while longer. Go here to get started.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.