Investing Losses: Death by Opinion

December 12, 2010 12:00pm by Barry Ritholtz

No Brainer Trades brought the above chart to my attention, and its worth spending some time detailing.

“I heard this guy on CNBC . . . well, his opinion is . . . his trades are . . .”

As the chart suggests, these turn out to be amongst the more expensive expressions of opinion that investors have. By definition, if you are relying on other people’s opinions, then you have been making investment decisions based on how these people play to your squishy emotions.

History has shown this to be a an unsuccessful investing process — who manages to touch push your buttons.

If you are relying on someone else’s opinion, then you are not relying on your own research, you are not basing your analysis on data, on history, or on logic. You have no idea whether or not you are making decisions based on high probability outcomes, but the odds are against it.

This is the latest chart in our pantheon of bad decision making . . .

(Thanks, Steve!)

Previously:
Lagging Psychology at Turning Points (April 15th, 2010)

P/E Expansion & Contraction (September 8th, 2010)

The Greed/Fear Cycle (November 10th, 2010)

See also:
Death From Opinions

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