The internet makes you a worse investor
By Marc Hubert
How the “Google Effect” Affects Retirement
Every month is a good month to strengthen your financial literacy.
But a special emphasis is placed on this month, as October is National Retirement Security Month. One of its main purposes, according to the US Senate resolution designating the month, is “to increase the…personal financial literacy of all people in the United States.”
Financial literacy levels have been miserably low for years, of course, so this need is nothing new. Yet our collective financial literacy seems to face a new and very modern threat: the Internet.
According to a study published this summer on the Social Science Research Network (SSRN), the Internet tricks investors into thinking they know more than they actually know, and the resulting overconfidence leads to its poorer performance of their portfolios. I first heard about this fascinating research from the ever insightful Joachim Klement, Trustee of the CFA Institute Research Foundation and former Head of Equity Strategy for UBS Wealth Management.
The SSRN study, titled “Confidence Without Competence: Online Financial Search and Consumer Financial Decision-Making,” was conducted by Adrian Ward, professor of marketing at the University of Texas at Austin; Tito Grillo, professor of marketing, business economics and law at the University of Alberta, and Philip Fernbach, professor of marketing at the University of Colorado at Boulder.
The study reached its provocative conclusion in several steps:
This new study recalls the dangers of overconfidence and the virtues of humility. But what I found most significant about the research — and most disturbing — is the pernicious way the internet tricks us into increasing our self-confidence without us even knowing it’s doing it. So even those of us who try to resist the dangers of overconfidence can still be led down the path of primrose.
This consequence of the Internet is not an accident. Sergey Brin, co-founder of Google, said at a Google event in 2010 that “We want Google to be the third half of your brain.” The authors of this recent study interpret this statement to mean that Google is blurring “the lines between the knowledge that resides in the head and the knowledge that resides on the Internet.”
Mark Hulbert is a regular MarketWatch contributor. His Hulbert Ratings tracks investment newsletters that pay a fixed fee to be audited. He can be contacted at firstname.lastname@example.org.
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