´´ Value Investing And The Virtue of Not Being That Stupid

Wednesday, March 1, 2017

Value Investing And The Virtue of Not Being That Stupid

Are you suffering the Dunning-Kruger Syndrome? And no dear reader it is not a highly virulent venereal disease. So there is no need to call your doctor. It is rather a highly virulent cognitive bias spreading around the financial centers of this world.

It explains why the majority of investors, may they be institutional or individual, are incapable of beating the market indices. It explains why so many are unable to part from the unknowledgeable crowd. It explains why so few mastering the art of doing nothing and have the virtue of being lazy.

We Are All Incompetent And Ignorant Idiots 


The genesis of the study by Dunning- Kruger was a bank robbery in Pittsburgh in 1995. The robbery appeared to be more like a cinematic slapstick ala Laurel and Hardy than a well thought and well executed bank robbery.

A man called McArthur Wheeler robbed two banks in a very short period during the daytime. He did this foolish action without any precautionary measures. He did not even bother wearing a mask in the service hall under camera surveillance. Thanks to the images he was caught the very same day.

Especially his explanation of rubbing his face with lemon juice in order to become invisible to surveillance cameras contributed to joviality to the officials. He explained that he read about this theory and verified it at home by taking a Polaroid picture of himself. Unfortunately, he took his selfie at the wrong angle and was not on the picture. Apparently, he was just another dweeb the majority of my readers will say. Fortunately, Dunning and Kruger saw it differently and started investigating.

They came up with the Dunning–Kruger syndrome. The syndrome is also often described as “the Anosognosia of everyday life.” Whereby, Anosognosia is a condition in which a person who suffers from a disability seems unaware of it or denies the existence of his or her disability. Hence, they are ignorant.

Dunning and Kruger found out that relatively unskilled individuals, whom they call poor performers, often suffer from illusory superiority. They mistakenly assess their ability at certain activities to be much better than objectively true and underestimate those of their competitors.

Highly skilled individuals, on the other hand, often underestimate their relative competence and overestimate those of their competitors. They erroneously assume that tasks that are easy for them are also easy for others.The miscalibration, or better ignorance, of the incompetent stems from an error about the self. Those of the highly competent, on the other hand, stems from an error in the evaluation of others.


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