Knowledge hurts

Knowledge  is bad for you, according to this study of Italian investors:

Investors who acquire more information attain lower returns per unit of risk...The negative correlation is stronger for men than women and for those who claim they know stocks well, arguably because these investors are more likely to be overconfident. We also show that investment in information is associated with more frequent trading, less delegation of portfolio decisions and less diversified portfolios.

There's an important message here, that goes way beyond stock-picking. It's that expertise and know-how don't necessarily improve performance. As Gerd Gigerenzer has argued here (pdf), sometimes simple rules of thumb - "hold the market portfolio" in this case - serve us better than complex information-gathering. For more, try this paper by Robin Hogarth.
Don't tell my employers this. 

Comments

[dearieme]

For those who don't know it, GG's book "Reckoning with risk: Learning to live with uncertainty" is excellent.

[Richard Hancock]

Of course, any sensible person reading Investors Chronicle, reads ONLY your pieces.