He wrote me notes expressing a player, and motivated civilians, one of my post. What makes me happy. Constructive criticism is to stimulate and enhance the views. He, however, hit a particular the nickname of prettysmart , as a business card that I found it too difficult and too - as we shall see - risky. Non conosco la persona che si cela dietro a una tale ammissione di talento fuori dal comune. E dunque non è di lei che parlerò. Ma del piccolo dettaglio di un nick vorrei approfittare per introdurre un grande tema che da tempo intendevo affrontare, e cioè quello dell’ eccesso di fiducia nei nostri mezzi e dei guai che ne possono derivare per un investitore .
Il campo d’indagine, come molti già avranno capito, è quello della finanza comportamentale , nata negli anni ’70 grazie alle ricerche di due psicologi cognitivi, Amos Tversky e Daniel Kahneman .
Dai loro studi, nell’ultimo quarter of a century, has developed a particularly fruitful line of reflection on the limits of our cognitive abilities and decision-making, which ultimately undermine the most fundamental assumptions of classical finance.
The overconfidence, a cognitive error of normal people
The direction of this revolution has been summarized, with rare effectiveness, in a famous phrase from another of its stars, Meir Statman : "The people in traditional finance, are rational. In behavioral finance, however, are normal. "
If the 50s had left the models of condensing finance abstractions of mathematical calculations in dense, built around the human agents of which assumes perfect rationality, then, with the advent of behavioral finance, there has been large - for the first time - of the empirical studies from which it was possible to determine as our decision-making under conditions of uncertainty, are populated by systematic errors.
Often, therefore, wrong. And this is because our information is incomplete and our rationality is influenced by emotions.
Among the most frequent sources of errors there, as he writes in Matteo Motterlini good book Economics emotional , "our ability to believe that instead of knowing things we do not know at all, and to give skills and expertise beyond that which they actually have."
This is called "the trap of complacency " or" cognitive boldness, a lack of systematic review in which we tend to incur overconfidence or over-confidence in ourselves.
Research done over the years are now many and leads to unambiguous conclusions. 90% of Swedish drivers, according to one study, considers himself better than average. Or 70% of studenti di liceo americani si attribuisce capacità di leadership superiori alla norma, mentre va ancora peggio tra i professori, il 94% dei quali è convinto di svolgere il proprio lavoro meglio della media dei colleghi.
In un altro famoso test, un campione di persone è stato sottoposto a delle domande di cultura generale e richiesto di dire che fiducia avesse nelle risposte formulate. Tra le risposte ritenute esatte con un grado di fiducia del 100% solo poco più del 70% erano effettivamente corrette.
Competenza e livello di cultura non sono di per sè un rimedio contro gli errori di overconfidence. Anzi.
Prendiamo ad esempio una professione elitaria come quella dei gestori di fondi .
Research - as reported by Motterlini - asked to provide a sample for each of 12 titles if the prices would have appreciated or depreciated over a period of time. 47% of the predictions proved to be correct (less than might be expected for a simple effect of chance), but the confidence expressed by the media managers in the accuracy of their forecasts was 65%.
The dangers of investment in the activity dell'overconfidence
to infer pretty smart, just like my reader proclaims with his nickname, is therefore a global trend. But what results the door? From the point of
evolutionary perspective, being equipped with overconfidence - to an extent, maybe not exaggerated - could have been an advantage. That would have given humans the confidence that would have helped to overcome, thanks to the maintenance of motivation, especially critical environmental challenges.
In the investment world, however, the "cognitive boldness" is due to a series of troubles that have been carefully documented.
as outlined in the book Michael Pompian Behavioral Finance and Wealth Management , there are four types of errors that investors end up be induced due to a systematic over-confidence.
a) once an investment choice is made, the excess of confidence in its correctness leads to ignore the negative information that would normally serve as warning signals. The investor overconfident, in short, tends to dwell only on evidence that confirms the soundness of its decisions and ignore contrary evidence. Doing so raises the risk of negative or even catastrophic, in violation of what the two great thinkers such as Charles Darwin and Albert Einstein considered a golden rule: the constant exercise of self.
b) The overconfidence leads to ' overtrading , and that is an exaggerated activism that increases the cost to the detriment of portfolio returns. The investor "bold" feels in possession of accurate knowledge and preference that seem to constantly promise new revenue opportunities. It is, however, an illusion.
c) The investor overconfident ignores the findings of the past and tends to systematically underestimate the risks in the markets. The crises seize the unprepared.
d) The general tendency to underestimate the risk can also be seen at the portfolio level, where the investor too confident in itself does not usually take care to put in place adequate diversification . The result is a concentration of risk far exceeds the capacity of tolerance.
True knowledge
Over-confidence, then, is a serious error from which the prudent investor must learn to look at, diligently exercising their critical thinking skills and self-criticism.
considered pretty smart just cause trouble, as he teaches Charlie Munger, the acute and wise socio di Warren Buffett :
“Persone come noi hanno tratto un enorme vantaggio nel lungo periodo dal tentativo costante di agire evitando di essere stupidi anziché cercando di essere molto intelligenti. Ci dev’essere una qualche saggezza nella massima che dice: ‘Sono i nuotatori forti che finiscono per annegare'.”
Il pensiero, naturalmente, corre alla straordinaria parabola di LTCM , l’hedge fund dei “ geni ”, costituito nel 1993 dal più brillante bond trader di Wall Street in partnership con due premi Nobel. Dopo quattro anni di funamboliche performance – rendimenti annui 40% and low volatility - the fund collapsed miserably in just five weeks during the summer of 1998.
John Meriwether, Robert Merton and Myron Scholes , unlike Warren Buffett and Charles Munger, had forgotten one of the basic principles of an ancient wisdom, Confucius already (pictured above) had stated:
"True knowledge is knowing that you know what you know and you do not know what you do not know."
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