There’s this hypothesis called the Dunning–Kruger effect that basically says people with low ability at a task often overestimate their ability at that task. I think we’ve all been there. I certainly have. You’re a few days into learning about a new subject, it feels like your mind expands and you’re like “Ohh… yeah, I got this. Totally makes sense. I’m a rock star.”
This recently happened to me when I was remodeling my new house. It has two bathrooms. I (with the help of my dad) tiled the shower of the guest bathroom. It was a pretty complicated job, requiring sealing, mortaring, cutting tiles, spacers, grouting, etc. By the end I thought I was king shit of shower tiling. What else is there to know? I just did the whole thing.
I informed my contractor I’d be heading upstairs to do the master bath (much bigger, no tub, tiled floor, built in seat, etc.) He was like “that’s a much harder job” and I was like “nah, I got this”. And he was like “the upstairs shower needs to be hot mopped, concrete poured, leveled for drainage [and insert here a whole bunch of stuff I didn’t understand]”. And I said, “Oh… that’s a whole bunch of stuff I don’t understand.” He said, “Eddie can do it for $1,200” and I said, “Yeah, let’s call Eddie.” Eddie came in with a whole bunch of tools I didn’t know existed and now my shower looks baller.
Anyway, this isn’t Personal Shower Tiling Club, it’s PFC. And I think a lot of people who are newer to investing overestimate their ability to outperform the market. Or they mistake their own random luck for skill. But the longer you do it, the more you realize it’s a complicated world out there. And guaranteeing yourself your fair share of all market growth by buying and holding index funds is most likely the optimal path to maximizing your wealth. Beware of those confident experts who may be mistaking where they are on the curve.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.