Comments on: You’re Not That Great: 4 Ways to Combat Overconfidence

By: Monevator

Monevator — Wed, 17 Feb 2010 19:08:14 +0000

@Arjun, I respectfully disagree. Almost nobody should be holding a large percentage of their equity in just one company. Even those few serious investors who go for super concentrated portfolios would look to hold at least 3-5 stocks, as far as I’ve seen.

In contrast, anecdotally at least, many people with employee share plans are very overweight in the shares of their employer. I’ve met several people of the years who hold no other equities at all outside of funds in tax exempt plans for retirement etc.

If you’re going to be so dangerously concentrated, doing so in the same company that employs you (and who possibly is on the line for paying your pension or other benefits, too) is the height of folly.

I’d rather hold all the shares of the best competitor if I was forced to choose one or the other!

As Flexo says, sell as soon as you can once any beneficial holding period has passed and diversify, IMHO.

By: Arjun @ Investing Thesis

Arjun @ Investing Thesis — Wed, 17 Feb 2010 05:20:44 +0000

Hey Flexo

With regards to your third point, I don’t think I quite agree. I think the decision to hold onto, buy or even sell a company’s equity is dependent on the company. I know several people who’ve dollar cost averaged their way, via regular employee share purchase plans to eventually become millionaires several times over, due to dividends and share price appreciation. Would you have the same opinion, if you were working at Goldman Sachs?

In addition, simply selling shares in a company because the price is going down runs contrary to your point about investing regularly in equal amounts, don’t you think?

By: Flexo

Flexo — Wed, 17 Feb 2010 02:01:00 +0000

That’s exactly the point. We’re free to make the range as large as we like. The fact that people generally start with a small range on the first quiz (whether the right answer falls within that range or not) speaks to the level of confidence. After receiving feedback, you take the second quiz, broaden your ranges, and improve your score.

By: Bytta @151 Days Off

Bytta @151 Days Off — Wed, 17 Feb 2010 01:53:52 +0000

It is sensible that on the second quiz, I double the size of the range and get more than twice of better result. Too bad they don’t stipulate the size of the range allowed; or is that the whole point of this exercise? Of course you will have better chance to be correct when you broaden the range.

By: SimplyForties

SimplyForties — Wed, 17 Feb 2010 01:36:31 +0000

I don’t know about keeping emotions out of it. I know you are talking solely about financial returns but for a lot of us, there’s more to it than that. A good many people have a difficult time getting started in the stock market. It’s a confusing place. Investing in a company you love, be it a clothing store you can’t live without or a company whose values mirror your own, is a good way to get your feet wet. As with any investment, you certainly don’t want to invest money you can’t afford to lose, but investing in a company or business you love makes you feel good and is a good way to get started.

By: Apex

Apex — Tue, 16 Feb 2010 17:21:39 +0000

I am not impressed with those quizes.

They ask random questions about things the person answering may have no idea at all and then tell them to try to be 90% sure but to not use too broad of a range. That encourages you to try to pick a smaller range which you have no way of knowing the answer for.

For example, bricks in the great pyramid. How big is the base? I have no idea, I will have to guess. Howe big are the bricks used, I have no idea, I will have to guess. Are the bricks all the same size, I have no idea, I will have to guess. Is the pyramid mostly hollow inside or mostly solid bricks, I have no idea, I will have to guess. But you are instructed to try not to have too narrow a range. The only reasonable answer is somewhere between 100 and 100 billion, but that is clearly not an answer that tells anything so you try to pick something like 20,000 to 100,000 and then you are way off. Which also tells nothing because you know zero about the makeup of the pyramid. The problem is the instructions lead you to believe that answering 100 to 100 billion is a cop out but its the only valid answer for someone uninformed on the makeup of the pyramid. I don’t see how this quiz measures anything.