How over confidence destroys earnings

“The curious task of economics,"  wrote Nobel Prize winner in economics Friedrich Hayek "is to demonstrate to men how little they really know about what they imagine they can design."

In other words, good economists are humble and that shows how few good economists live in the US.

Investors should be humble, too, and researchers have provided the proof. Two professors at the University of Maastrict published a paper at the beginning of this year on the question of “How Does Investor Confidence Lead to Trading?” The problem is not that initial successes spur investors to greater confidence.

Hence, we find evidence that our measure of investor confidence refers to a certain type of individual, as it is stable over time...Moreover, there is no evidence that any of the small fluctuations in investor confidence are driven by past returns, that is, that high returns lead investors to learn to be overconfident...That is, confident investors generally have lower returns (because of their higher turnover, see Section 5.1), but variation in those lower returns does not change their confidence.

In other words, the overly confident investor is always confident whether winning or losing. And men don’t have a monopoly on excessive confidence: