Wednesday, August 4, 2010

Why Is Overconfidence Bad?

Well, I'm a loser. I mean this in the sense that I lose things, and I'm talking about Neubert's money right now. Since the portfolio contest for the Summer Investors has started, I've lost David over $100 between two stocks. Now, what am I doing wrong?

Could I be buying at the wrong times? Buying the wrong stocks? One of them, Ariba (ARBA), was partly a timing issue. I trusted that their earnings report would be better than analyst expectations because they haven't miss them for a while (read my explanation here), but I was sadly mistaken. I should've had David sell as soon as I heard about them, but by then it was already too late. This is the first example of why overconfidence can hurt you. I had overconfidence in the company and their ability to beat analyst expectations. Lesson learned: trust no one.

I also had overconfidence in my analysis of the company. I thought they were doing really well financially, but there must have been something I missed in the reports that they filed. I also had too much confidence in my own analysis abilities. I have big dreams of becoming a trader for a firm, but I seem to keep forgetting that I don't really know much and I have a lot to learn. Lesson learned: I know nothing.

Now, my goal is to actually do more thorough analysis, make better investment decisions, and have better risk management/lower loss tolerance. I'll keep you all updated on my progress.

-Danny Guttridge

5 comments:

  1. Keep y0our chin up. Your strategy was good. It just didn't work out. You can't make money unless you know how to lose it.

    You should link back to the original blog you wrote about why you did the trade.

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  2. Even the most experienced traders lose money, and I think beginning investors can take inspiration from that. Thanks for talking about the full experience, Danny!

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  3. The first thing you need to strip out in investing is your emotion. As Warren Buffett said (characterized him in my blog, video), the market doesn't care what you think of it. It is cold. You need to be too. Easier said than done but once you get to that state you can accomplish anything.

    http://chrispycrunch.blogspot.com/2010/09/free-mba-lessons-from-warren-buffet-pt.html

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  4. Thanks for sharing all of your hard earned lessons learned.

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  5. I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I’ll love to read your next post too.

    Regards,
    Lorie Garcia

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