Interestingly, married women do worse than single women because they get influenced by their husbands, while married men do better than single men because they have the influence of the sage counsel of their spouses. They don’t overestimate their skills as much as men do, so they trade less and have fewer turnover costs, resulting in better returns. However, men have overconfidence in skills they don’t have, while women simply know better. And the stocks they sell go on to outperform in equal measure. The stocks they buy perform just as poorly as those that men buy. Women are not better at stock picking than men. Female investors get better returns than men due to underconfidence But according to evidence, that’s dead wrong because people are not competing one-on-one. Most investors tend to be overconfident and think they’re a lot smarter than the average person, so they will be able to control them. If some investors are going to outperform, then some investors must underperform. Larry says that the market is made up of all types of investors. Overconfidence isn’t such a good trait when it comes to investing So it’s good to feel better about yourself as long as you don’t make mistakes. Imagine getting up daily, looking in the mirror, seeing yourself, and thinking you’re dumb, ugly, stupid, and nobody likes you. According to Larry, this is actually a good healthy thing. If you ask people, are you liked by others more than the average person? Are you a better lover than the average person? Can you drive better than the average person? It doesn’t matter what the question is the answer from a vast majority is that they think they’re better than the average person. ![]() There’s a lot of research showing that human beings tend to be overconfident in their skills. In this first series of many, they talk about mistake number one: Are you overconfident in your skills? The majority of people are naturally overconfident Today Andrew and Larry discuss a chapter of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. Larry deeply understands the world of academic research and investing, especially risk. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks. In today’s episode, Andrew chats with Larry Swedroe, head of financial and economic research at Buckingham Wealth Partners. “When you trade, understand that you’re competing against the market’s collective wisdom.” Look for value-added information when researching an investment. In this first series of many, they talk about mistake number one: Are you overconfident in your skills? In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry discuss a chapter of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. This makes The Incredible Shrinking Alpha a complete guide to successful investment strategy.Apple | Google | Stitcher | Spotify | YouTube | Other Quick take As a bonus they add appendices that will make you a more informed and, therefore, better investor. They present a list of vehicles to consider when implementing your plan and provide guidance on the care and maintenance of your portfolio. ![]() In this greatly expanded second edition, Swedroe and Berkin show you how to develop an investment plan that focuses on what risks to take, and how much of them, as well as how to build a diversified portfolio. They demonstrate that even for the most talented managers, their ability to add value is waning because: the amount of alpha available is declining it must be split among an increasing amount of investment dollars and the competition is getting tougher. ![]() Alpha, or outperformance against appropriate risk-adjusted benchmarks, is shrinking as it gets converted into beta, or factor exposures. If you don’t yet believe, Swedroe and Berkin provide a compelling case that you’re playing the loser’s game of active management. If you understand the benefits of indexing, or systematic investing, it will reinforce your commitment while increasing your knowledge. This comprehensive book is the antidote for the active managers’ siren song. Active managers persistently lag the returns of benchmarks and index funds that track them, with the excuses for underperformance recycled every year.
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