The internet is making you a worse investor

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Every month is a good month to increase your financial literacy.

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But this month it is getting special attention, as October is National Retirement Security Month. One of its primary goals, according to a US Senate resolution designating the month, is “to increase the personal financial literacy of all people in the United States.”

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Financial literacy levels have certainly been disappointingly low over the years, so this need is hardly new. Yet our collective financial literacy is facing a new and very modern threat: the Internet.

According to research posted to the Social Science Research Network (SSRN) this summer, the Internet leads investors to think they know more than they really do, and the resulting overconfidence can make their portfolios less good. cause to perform. I first heard about this fascinating research from the always-savvy Joachim Clement, trustee of the CFA Institute Research Foundation and former head of equity strategy for UBS Wealth Management.

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The SSRN study, titled “Trust Without Ability: Online Financial Searching and Consumer Financial Decision Making,” was moderated by Adrian Ward, a marketing professor at the University of Texas at Austin; Tito Grillo, a professor of marketing, business economics and law at the University of Alberta, and Philip Farnbach, a marketing professor at the University of Colorado at Boulder.

The study reached its provocative conclusion in several stages:

This new study reminds us of the dangers of overconfidence and the virtues of humility. But what I found most important — and most troubling — about the research is the dangerous way the internet prompts us to boost our confidence without even knowing it’s doing it. So those of us trying to resist the dangers of overconfidence may still be headed down the primrose path.

By the way, this consequence of the Internet is no accident. Google co-founder Sergey Brin said Google event in 2010 That “We want Google to be the third part of your brain.” The authors of this recent study interpret that statement to mean that Google “blurs the boundaries between the knowledge that resides in one’s mind and the knowledge that resides on the Internet.”

Investors beware.

Mark Hulbert is a regular contributor to MarketWatch. Their Hulbert Ratings track investment newsletters that pay a flat fee to be audited. He can be contacted at [email protected],

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