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The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails by Steven M. Sears

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Often Wrong; Never in Doubt

Overconfident investors tend to engage in anchoring. They focus on one fact that they think is important, rather than doing fuller research. This, also, is a side effect of information overload. Because too much information exists, people often focus on easy facts. This can happen by dismissing negative news, or positive news that contradicts an avowed position. Such rigidity in viewpoint is dangerous, and a hallmark of ineffective investing. Some people think it is noble to take a position, and take a stand, but the market is not static. It changes. Remember the Hapsburgs. They ruled the Holy Roman Empire from 1400 to 1806. Henry Kissinger, the former U.S. Secretary of State, said the Hapsburgs’ enemies benefited from the dynasty’s inability to understand emerging trends, or tactical necessities of power. “The Habsburg rulers were men of principle,” Kissinger said. “They never compromised their convictions except in defeat.”17

The absorption of financial information is not something many people think about. This is perhaps why so many investors are often wrong, but never in doubt, which is one of the most puzzling aspects of the stock market. Why do so many people make the same mistakes again and again and never learn from their experiences?

In a 1977 landmark study on confidence, Knowing with Certainty: The Appropriateness of Extreme Confidence, scholars, Baruch Fischhoff, Paul Slovic, and Sarah Lichtenstein, set out to answer a simple question: how ...

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