Their Confidence Is Killing Your Returns II

Carnegie Mellon University Take II
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The marketing machine of the financial institutions over shadow thr the truth of investing. Dan Solin articulates what true investing is.

I often wonder why so many investors ignore the overwhelming data indicating that capturing market returns in a globally diversified portfolio of low management fee index funds in a suitable asset allocation is likely to outperform stock picking, manager picking and market timing — the daily grist of many brokers and advisors. If you have limited time for research on this subject, take a look at the “Standard & Poor‘s Indices Versus Active” reports, which you can find here.The answer to this riddle may have nothing to do with a battle over data, and everything to do with the perception of confidence. Don Moore, of Carnegie Mellon University, conducted research showing that we are inclined to accept advice from a confident source, even if the track record of that source is unworthy of our trust. Another study is even more troublesome. It found those receiving “expert” advice essentially “switched off” their brains (as measured by an MRI). The subjects would have been better off ignoring the advice of the “experts” and making their own decisions, but their brains went “dormant” when confronted with “expert” advice.

Keep this research in mind the next time you are exposed to the oh-so-confident opinions of financial experts. You would likely be better off independently looking at the data and making your own decision.

Be careful who you take your advice from.

Comments are welcome.

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