Ever wonder why some of your ‘certain’ investment winners turned into lemons? The answer is confidence has its quirks. While looking at the bright side of things is useful, there is an incredibly fine line between optimism and over-confidence. More often than not, investors have greater confidence in their abilities than is warranted. For instance, most professional investors place great faith in their ability to decipher patterns and exploit ‘themes’ rather than aim to ‘buy cheap and sell dear’. What could be the justification for the outlandish salaries they earn apart from superior stock selection skills? It is precisely this illusion of knowledge and control that fosters over-confidence.
(This story appears in the 30 April, 2010 issue of Forbes India. To visit our Archives, click here.)