MISTAKE 41Do You Try to Succeed Even When Success Is Highly Unlikely?

People think of trading as playing tennis against awall. They can position themselves perfectly, and theycan return the ball just right. But when they trade,it is real tennis that they are playing against veryskilled players, including professional players.—Meir StatmanWall Street Journal, November 24, 1998

As we have seen, it is a common human trait to be overconfident of our skills. Even when individuals will admit that a task is difficult, there is still a tendency toward overconfidence. This is certainly true when it comes to identifying active managers who will outperform the market in the future. Presented with the evidence on the failure of active managers to outperform, ...

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