Question

Investor overconfidence is an issue that impacts the majority of investors. The calibration approach has often been though of as one of the more effective means of forecasting confidence. However, even with this approach many are still overconfident. Please discuss the potential pitfalls that could be experienced as a result, along with some effective tactics at maintaining confidence at a reliable level.  

Answer 1

Investor overconfidence is definitely a big problem which impacts majority of the investors. Investors should always be optimistic when making investments but not over optimistic.

The investor should keep in mind that there's always 2 possibilities when an investment is made. Either it goes up and you make profit or it goes down and you end up making a loss. So its almost always in a 50:50 balance. We could lure the balance more towards profit side by doing some researches and studies on the stock we are investing in and this would help to increase the ratio to maybe 60:40 or 70:30 , but even then we cabt guarantee that profits will be made.

So, we must understand that it is only these overconfident investors who face an issue as they are only expecting to make profits and wheb their stocks end up crashing, they are totally demoralised because they never gave this side a thought.

So, all investors should be aware that there's always 2 possibilities and should be ready to deal with both the scenerios. If its profit, well and good. But if its losses, thats still fine.

Hope this answers your question. If you liked the answer please give an up-vote. It would be highly encouraging for me. Thank You.