Stock Investments- Decision making heuristics

I was reading a nice and interesting piece of an article entitled “Don’t Blink! The Hazards of Confidence” in last week’s New York Times Magazine from Daniel Kahneman.

As you know very well that having confidence or over confidence in one’s own judgment is part of being human.

After reading the New York Times article I was just recollecting my thoughts on the influence shadow of confidence in one’s decision making.

Whether your make investments in stocks or in business or going for business negotiations or purchasing a property or proposing a girl or accepting new assignments and so on you certainly rely more on your  confidence  or gut feeling in your judgments.

You always think that you are one hundred percent right. It is human indeed to think like that. Equally you may not also ready to reject or fail to accept the point that you may go hundred percent wrong in your decisions. It is human psychology!

Even for very confident and experienced recruiter it may be difficult task in predicting at the time of recruitment how a soldier will perform in the actual combat front. Same is true for sports person.

Similarly for investment bankers and mangers it is very difficult to say in black and white their performance in terms of growth and yields.

Seldom people achieve result oriented confidence in their decision making process.

The current ongoing global financial mess is a classic example.

One and half decades ago I spent a great deal of time in exploring the behavioral aspect of retail level investors’ (mania) in IPOs in India.

Normally these investors constituted a leaderless group usually driven by their herd mentality or by their own instinct or guided by market rumors and gossips.

They used to think that they were right all the time. Although failure was common and they used to be overconfident in their approach towards investments in IPOS.

I also used to wonder about the puzzle – why buyers and sellers alike think that the current price is either wrong or right. (“A Random Walk Down Wall Street.”)

I sensed at that time their predictions -confidence or overconfidence or cut-off judgments, whatever you may name- were only little better than random guesses.

I also understood at the same time that many times educated guesses were not more accurate than blind guesses.

According to our statistics only very few succeeded in their expected returns on their investments and most of them practically burnt their balance sheets for ever.

Therefore investors’ confidence according to me should not be confused with one’s visual illusions.

I use to laugh whenever CNBC anchor people utter the word investor’s confidence!

I yet to know the exact meaning, although I have been in this field for more than three and half decades.

Usually people confuse confidence with the exaggerated expectation of consistency which definitely may prove to be a common error of judgment in stock investments?

Do you agree with me?