strategy
PROPERTY INVESTMENT IS EASY!
? t i s i Or
W
e live in the age of information, where data is readily available to us. But the problem isn’t obtaining the information, but rather, knowing what to do with it. Property investment is an endless journey of learning. After 10 years in this business, there are still property segments, property markets, areas and neighbourhood that I am not aware of. And yet, many investors overestimate their abilities and fail in the process. Why is that?
People tend to be at their most confident with a little bit of knowledge, but will gradually realise that they are not as competent as they thought they were. So how does this concept apply to investments?
DUNNING KRUGER & INVESTING A few years ago, everyone was jumping on the cryptocurrency hype. I’ve joined in as well after learning a bit here and there. Many people buying into bitcoin in late 2017 appeared to know very little about investing and were only buying because of Fear Of Missing Out (FOMO), including yours truly. Incidentally, at that time, there were many self-proclaimed cryptocurrency investment experts or “gurus” predicting neverending profits with an increasing level of conviction. I believe that many of these experts have mistakened domain
Dunning-Kruger effect in Data science “Data Science looks super easy”
“Data Science is complicated”
The ‘Dunning-Kruger Effect’ is a cognitive bias which causes people of low abilities to have the disillusion of skill, thus wrongly assessing their own ability as greater than it is. This cognitive error may result in people being unable to recognise their own incompetence in a particular field. The first rule of the Dunning-Kruger club is that you don’t know you’re a member of the Dunning-Kruger club. Dr David Dunning believes that people tend to think that this effect only applies to others, when, in fact, it is something that impacts each and every one of us.
“
We are all confident idiots” - Dr David Dunning
Beginners don’t start out displaying confidence from the get-go, but rather manifest it after a little bit of learning. You have probably witnessed the Dunning-Kruger effect in reality TV shows such as American Idol or The Voice, where contestants think they can sing, but really can’t.
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Confidence
THE DUNNING-KRUGER EFFECT “There’s more than I thought. This is too complex”
“Now the concepts are starting to make sense”
“What’s this?” None
Average
Expert
Competence
expertise (knowing how cryptocurrency works) for investment experience (knowing how markets work). Many underestimated how much they didn’t know. In Jason Zweig’s “Your Money and Your Brain”, roughly 75% of people believe they’re above average regardless of the skill that is being assessed. • Driving? ~75% believe that they are above average • Telling jokes? ~75% above average This is despite the fact that, statistically speaking, only 49% of people can realistically be above average.
