In a new blog post, A Wealth of Common Sense’s Ben Carlson discussed the pitfalls of relying on market experts for trading ideas.
Confusing knowledge with judgment can be a costly mistake, he explained. “People assume [Wall Street] professionals should have everything under control because this is what they do for a living, but it just opens you up to a whole host of different biases when you’re dealing with this stuff on a daily basis.”
In fact, investment professionals sometimes let overconfidence cloud their judgment, a pitfall than many skeptical retail investors can easily avoid.
“As a society we probably have a problem with hero worship as we place way too much faith in experts and celebrities.”
A recent survey of institutional hedge fund investors found that an incredible 99 percent of those surveyed anticipated annual returns of at least 9.0 percent, and two-thirds (67 percent) expected annual returns of 12 percent or higher.
Carlson calls these investors delusional.
Prior to 2015, hedge funds had underperformed the S&P 500 for seven consecutive years. According to the HFRX Global Hedge Fund Index, hedge funds are…
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