Why Overconfidence Can Tank Your Portfolio, and How to Stop It

If we don’t reign it in, our own psychology can be responsible for many of our worst investing blunders.

In my Accelerated Income Guide, I’ve discussed some of the more impactful psychological tendencies that can cause anyone to stumble, including Recency Bias yesterday and Crowd-Seeking Bias last Saturday.

The bottom line is that the more you know about the workings of your own mind, the “bugs” inside it, and how they may work against our investment performance, the more you can develop strategies to mitigate their negative effects.

In today’s essay, we’ll talk about another major psychological challenge investors face: Overconfidence. I’ll detail overconfidence bias, how it works, and how you can neutralize its negative effects.

Let’s get started.

Confidence vs. Overconfidence

First, let me clear the air a bit. I believe confidence is a good thing.

Without it, you wouldn’t do many of the things that make life great. Whether it’s applying for a job, asking someone for a promotion, or even investing money in the market, confidence is part of what gets you to a great result.

However, overconfidence refers to the phenomenon that people’s confidence in their judgments and knowledge is higher than the accuracy of these judgments.

Put more simply, overconfidence blinds you to the reality of your ability and the circumstances around you.

It’s why 65% of Americans think they’re smarter than others; it’s why more than 50% of business owners view their businesses as more than 90% ethical than their competitors; it’s why 93% of American drivers think they’re above average.

Overconfidence is even partly to blame for the Titanic, which was considered to be an “unsinkable” ship.

It’s called the “mother of all cognitive biases” for a reason!

If overconfidence can sink a ship, it can certainly affect your investing life any number of ways, and sometimes it can take some time to experience the consequences.

For instance, the latest Retirement Confidence Survey by the Employee Benefit Research Institute found that seven out of 10 workers are confident they are doing a good job saving for retirement and know how much they will need to save to live comfortably, but only 44% have actually tried to calculate how much money they will need.

If these workers feel confident about their retirement savings, but haven’t calculated how much money they will need, they’re acting without supporting evidence. And without “crunching the numbers,” they may never build a big enough nest egg to enjoy a comfortable retirement. That’s a lesson all of us should heed.

To help build that nest egg, people have used my quantitative system to invest in blue chip stocks, or to find small caps that can grow 10X. But now I’ve adjusted my proven investing analysis to focus on the stocks that are set to soar in just a short time period.

You won’t have to wait years for double- and even triple-digit returns with my Accelerated Income Project 2021. I’ve designed it so you can get the income you need on a regular basis. And no: It doesn’t require using options or any “trick” investing.

How Do You Combat Overconfidence?

I’m a numbers guy. Always have been. Since I was a kid, I’ve loved math and I knew that math was the right way to understand the world.

Said another way, I depend on evidence for my decisions.

And by sticking with the facts, I’ve found stocks that have made huge moves over short periods of time. We’re talking about moves of 100%, 200% and even 500% in months instead of years.

We’re talking about opportunities like Bitauto (BITA). That stock had been flat for months, but my system picked up on the change in company performance, so I did some did some final vetting and decided it was time to “get in.”

Over the next seven months, the stock soared 209%.

But then, things changed again…

One of Bitauto’s indicators dropped off. My system noticed the drop in performance, and I confirmed it: it was time to “get out.” When you’re sitting on a great profit like the one we had, that can be a tough call to make. It’s all too easy to become too emotionally invested – too stubborn to sell. But numbers don’t lie…and you’re usually better off heeding them.

Sure enough, Bitauto’s stock started heading down. Luckily, because I’d seen the signs, my subscribers and I were well out of harm’s way! And that’s just one stock – just the tip of the iceberg.

Gains like these can be a retirement game changer. A chance to collect triple-digit returns in a short time.

The reality is that as wonderful as the human brain is, it is a terrible tool for investing. It’s like trying to eat soup with a fork.

With my Accelerated Income Project 2021, I’ve taken overconfidence out of the picture; in fact, I’ve removed ALL human biases. Investing decisions are made on cold, hard data.

And a special set of that data is signaling the stocks set to soar … and in a hurry! In fact, my system flashed the “buy signal” on two stocks last Thursday and found two more stocks this week. If you’re interested, you can find all the details here.

You’re not going to want to miss out. If you want to get in early, you can go here to get started.

Louis Navellier

Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

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