Monday, 29 March 2010 07:14

Dunning Kruger Effect

“The trouble with the world is that the stupid people are cocksure and the intelligent are full of doubts”

- Bertrand Russell

To put it crudely, the not so smart people are not so smart enough to know that they are not so smart.

Alright, I’m not trying to be an elitist over here. This post is probably an extension of curse of knowledge. So while there is a trouble of knowing too much, on the other hand, knowing too little may make us inflate our own capability. Nonetheless, it is a true cognitive bias that we have.

There is also another saying that still water runs deep. This is why the real smart people are those who keep quiet most of the time as they tend to have some unfulfilled doubts that they are unsure of. Obviously, we all know about people trying to be smart aleck.

So what’s the purpose of this article?

In the stock market, there is this group of people called the sucker class. There are many annoying issues about them but the most annoying one is that they talk a lot and love to give stock tips. These are the people who also think that they know but actually they don’t.

On the other hand, the most intelligent people tend not to be able to excel in the investment world. I would certainly consider some professor as really intelligent about the world. Quite a while back, a professor was telling me that the knowledge of Jim Rogers is minimal in the academia world. I was shocked. It takes a lot to mention that a billionaire investor such as Jim Rogers is wrong with his economics judgment. Nonetheless, I will not reject the notion. In fact it is more likely to be true. That is probably the issue with really smart people who don’t usually make it in the stock market. Issac Newton is one such example. He lost a huge sum of money during the South Sea bubble. He could not understand the madness of the crowd back then.

I guess there is something more about real successful investors.

By Toh Chin Sheng
VP, Research & Education of NTU Investment Interactive Club

~disclaimer:The information, statistical data and opinions contained herein are of the author’s own, and have been obtained from sources which he/she believes to be reliable, but it does not represent that they are accurate or complete, and they should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. The securities mentioned in this report may not be suitable for all types of investors. ALL investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Read any and all prospectuses carefully before making any investment decisions. As you know, a recommendation, which you are free to accept or reject, is not a guarantee for the successful performance of an investment and we are expressly prohibited from guaranteeing accounts against losses arising from market conditions. NTU-IIC and its members will not be held liable in any manner for any losses arising directly or indirectly from investment decisions undertaken based on the information/statistical data/opinions expressed.

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I would not say the Prof are smarter than the Jim Rogers or Jim Rogers is smarter than them. I think they are smart in their own ways. Those prof are very smart in their own field of research but they are not good in the stock market. While Jim, on the other hand, have the ability to spot trends way ahead of the normal folks, so he is smart in these area. He may get some of the economics theory or concepts wrong, but, econs in itself has such so many school of thought that it may be right in one school and wrong in the other school.

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So, all these great people, either Jim or the Prof or Newton, they are smart but in different field.

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