In this video, Paul Blatz explores the pitfalls of overconfidence and hindsight bias in investment decision making. Overconfidence is the tendency for investors to become excessively sure of themselves after a series of successes. This unwarranted certainty can lead to ignoring risks and making poor investment choices. On the other hand, hindsight bias occurs when individuals believe that past successes were predictable and can be consistently replicated in the future. This bias often manifests as a result of luck, rather than skill or foresight.
Paul highlights the role of ego in fueling these biases and emphasizes the importance of tempering it when making investment decisions. By focusing on sound research, investment processes, and portfolio construction, individuals can avoid falling prey to their own overconfidence and the illusion of predictability created by hindsight bias.
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