Overconfidence and factors for

Overcontident investors correcting overconfidence bias

do not
prepare themselves for any kind of
overcontident about their uncertainty because they ar
predictions.
Overcontidence of investors generally misleads
TIsk
them, and they tend to ignore the actual
involved in the
investments because they often give less
prediction window. importance to their
InvestorS suffering from overconfidence usually believe that their choice
of investment
avenues is right, but this can often lead them towards low returns from their investment.
Generally, overeconfident investors do not diversify
their portfolios much. This may
expose them to a higher risk. Investors blindly believe in knowledge and the ability to bet
on concentrated stocks, and that is the reason they underestimate the downside risks and

hold on to
undiversilied portfolios.
When nvestors are overconfident about their investment decision, they often tend to

gnore important information and oversee any information which contradicts their

decision. Overconfident investors often overestimate their ability to evaluate a company

InvestorS suffering from overconfidence bias believe in their ability to get in and out of

stock, and that's why they go on trading excessively.

Overconfidence bias may have a lot of negative impact on the investment decisions made by an

investor. Some of the shortcomings have been listed below

Investors with overconfidence bias often
tend to
Search for Multibagger Stocks:
stock. As a result, they often invest in a
lot of risky
believe that they can pick the next big
information about a company
do some analy sis or receive some
penny stocks.) They
stocks,
special. Therefore, they invest risky
in
which makes thenm believe
that they are

ends up destroying the value of thier portfolio.

and a lot of times,this
overconfidence bias are known to trade excessively.
with
Trading too Often: Investors
in possession of some special knowledge
they often believe that they are
This is because too much
a known fact that trading
are not aware
of. However, it is
that other investors transaction costs
investors well being&This js
largely because of the
can be detrimental to often, they
detrimental because
if an investor trades too

it can also be
involved. However,
stocks/
t0 end up picking some wrong
are m o r e likely
 Igore Negative lnlormatiun
Overelidee bias
linders the anlity f an investn to
ctually evaluate investnent, Their thoughts
any
He ade based on
are always iased, and their deciions
enofions insted of being bawd on
fact, This is the reawn that
nvestorm often continue
investing even afler they iay recive egative
information about
Company, Iivestors with overconfidence bias are lar
more ikely io ignore negative
infomation since they believe that they already know what's
best
Underestimate Risks: Investos witlh overconfidence bías are known to
not pay attention
lo
mpirical stock data before they make any investments, This is the reaon that
they
often underestimate the risks involved in their investments,
Overconfident investors are
known for holding portfolios that are lew díversified, As a result, when the markets start
to turn red, these investors often end up facing the biggest losses,
Overconlidence bias can be dillicult to avoid. This is because whenever an investment deeision
is being nade, investors are confident because of the research that they may have done.
However, a lot of time, this confidence may be the result of a biased analysis, From an investor's
point of view, differentiating between confidence and overconfidence is almost impossible. This

is what makes investing diflicult, as well as interesting

How to overcome the overconfidence bias in your investment decisson?

feel certain about an investnent future than it is. This

e aWare that you tend to ore

hens you lend to 1le morc 1isks tha1 you think you arctaking(Investors should always
This margin can be called the
add an Cxtra margn ol
salcty in their decisions
overconfidence margin.
from the market cperts. Do 1iot follow
2, ( e just the spectators of predictions. especially
how wrong most of them
at he forecast's history, ít's anazing
hem blindly, If you lool
then adjust your confidence
werc. Think and forecast for yourselfand
scenario that gives you a chance
of judging a

favor the pessimistic

3. With all plans,
to somne ezent,
siluation realistically
economic history, plan
old political history, Even
Stock market history.
4 Read history comments in the business section
25-ycar-old newspaper
Rcad the market
hetter, read a

unpredictable.
Almost nobody got it right. 1Don't
You will see that he world is highly

wilI be an exCeption
think thal you