You’re Not as Good an Investor as You Think You Are

The Wall Street Journal:

Are those who can’t remember the crash condemned to repeat it?

Markets have been rising and investors returning to stocks, thanks to cheap money from central banks, a rash of takeover deals, the glimmers of economic recovery—and an epidemic of amnesia.

Elizabeth Loftus, a psychologist at the University of California, Irvine, says people are prone to “spontaneous distortions of memory that make us feel better about ourselves.” Studies have shown, for example, that people remember voting regularly in national elections even when they haven’t cast a ballot in at least six years and that 71% of students who earned D grades in high school later recall getting higher marks.

“One thing that might make some investors feel better about themselves,” Ms. Loftus says, “is remembering that their losses were smaller or their gains were bigger than they actually were.”

Read the whole story: The Wall Street Journal

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