Imagine this: You open your first brokerage account, make a few trades based on trending stocks on the home page, and within a few weeks you’re up 20%. You start thinking, “This investing thing is easy. I just discovered my hidden talent. Am I the next Warren Buffett?” Fast forward six months and half your profits are gone. You’ve just experienced the Dunning-Kruger effect, which is a cognitive bias where people with the least knowledge are the most confident. In investing, this phenomenon doesn’t just hurt egos; It destroys the portfolio. So, in this article, we will understand what its effect is and how to counter it to become a better investor.
What is the Dunning-Kruger effect?
graph The Dunning-Kruger effect is shown above. Dunning-Kruger effect, named after psychologists David Dunning and Justin KrugerDescribes a phenomenon where people with limited knowledge in a domain dramatically…
