Self-help gurus are famous for lines like “fake it until you make it” or “believe and you can achieve”, to build confidence in their readers/listeners and encourage people to move forward. In many ways this is great advice because inaction puts one on the road to nowhere. Learning by our mistakes is effective over the long-term, but many would prefer the “perfect solution”, especially when it comes to investing hard-earned savings. In the article, Research: Learning a Little About Something Makes Us Overconfident, the data indicated that learning something new could easily lead to more confidence than warranted based on actual outcomes.
However there is an important distinction between being confident and being overconfident. Being overconfident creates an illusion of skill that may not exist. Overconfidence is widely recognized as one the investor biases that lead to significant losses. Often it starts with being right about an investment. Bring right clearly feels good. Yet being correct once does not mean one will be correct on the next decision to be made. It may not even give recognition to a decision that needs to be made. Sound, profitable investing is the result of many decisions, focused on probable success, not with absolute precision but accompanied by work and experience to reduce/eliminate poorly performing investments.
As the quote in the article by Vernon Law indicated, “experience is a hard teacher because it gives the test first, and only then provides the lesson.” Some have the time, experience and interest to manage their own portfolios. Of these, I would place interest/passion at the top. Without the interest, one does not make the time or invest the energy to get the experience. With the interest and passion, an investor will invest the energy to learn the proper skills to invest a portfolio pragmatically and profitably. Otherwise, it is just a hobby that costs valuable capital without any physical rewards.