Improve Your Investing Decisions By Ignoring Short-Term Predictions

Believing in the illusion of control, or the ability to forecast the future, can cause overconfidence in investors and harm to your portfolio.

Spyros Makridakis lives in Athens, Greece, a javelin’s throw from where the famous Oracle of Delphi forecast the future for ancient Greeks. Centuries have passed, but Makridakis says we still crave “experts who will take away all uncertainty about the future.”

In fact, the desire to predict and control our universe is a hard-wired human need, according to many psychologists. Makridakis, professor of decision sciences at Insead, an international graduate business school and research institution, points to what psychologists call the illusion of control -- a faith that the people we trust and the things we do will “somehow give us the ability to control the future.” Unfortunately, he says, our faith is usually misplaced, and that gets us into trouble -- especially with our investments.

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Bob Frick
Senior Editor, Kiplinger's Personal Finance