average humans

 INVESTING    amusement    average humans    myths & traps    finally    notes & references

Problem: Investors can delude themselves about their own skills and performance, leading to persistent and costly investment mistakes. Psychologists interviewed a large sample of people, asking them to rate their own driving abilities and found that over 88% believed themselves to be “above average.”1

Solution: You are probably2 only a human. The market is bigger than you. Stay out of the casino. Go home and watch your garden grow.

If you try to time the market, pick stocks, or even just hire “advisors” to engage in that activity, you are playing a loser’s game.

The vast majority of investors would be better off simply accepting market returns.

Funds and ETFs are in theory much safer than individual stocks, but in actual practice much trickier to invest in.3

A three-fund (or even two fund) portfolio of truly passive indexed products from reputable firms is the ultimate investment.4 Keeping things simple goes a long way toward a good result in ANY endeavor. This can give you financial security, restful sleep at night, and more time with your family.

Being average can have many advantages, including:

Security: Being average can mean you’re less likely to be criticized or scrutinized.
Health: Being average can help you avoid physical and psychological illnesses.
Self-awareness: Feeling average can lead to high self-awareness.
Adjustment: Average kids5 can be better adjusted, happier, and more successful than their more gifted peers.
Balance: Accepting your limitations can help you lead a more balanced life.
Productivity: Accepting being average can make you more productive.
Satisfaction: Accepting being average can help you find satisfaction in more areas.
Investing: Not chasing above-average returns can help you stay away from hot sectors and stocks, and achieve adequate returns that help you meet your goals.

  1. Many studies have found that up to 88% of drivers consider themselves to be above average at driving, which is an example of a phenomenon called illusory superiority. Illusory superiority is when people overestimate their own abilities and underestimate the abilities of others. Drivers may also rate themselves as more skillful and less risky than the average driver. For example, distracted drivers may not think that their phone use is affecting their driving. ↩︎
  2. CAPTCHAs used to be proof – but not so much anymore.. ↩︎
  3. There are now far more ETFs than there are stocks. “Managed ETFs” are a step backward. ↩︎
  4. The 3-fund portfolio was invented by Taylor Larimore, a founding Boglehead. ↩︎
  5. Otherwise known as “the Lake Woebegone effect.” ↩︎