Investing is hard.


THE ABOVE IS A SENTIMENT I HAVE REPEATED IN MY BLOG TOO MANY times to count. It never ceases to amaze me how even the most sophisticated investors can so often get caught with their proverbial pants down. For any number of reasons, sophisticated investors make fundamental mistakes, often out of overconfidence, that belie their high status. We see it all the time—investors get sucked into (in hindsight) obvious Ponzi schemes, or blow up their portfolios through the abuse of leverage, or invest in vehicles so complex that they did not understand them to begin with.

Investor overconfidence manifests itself in other ways as well. The media is rife with so-called market gurus or pundits that are quick ...

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