Are you really that smart? I am confident that I am not, I didn’t need a nifty effect to tell me.
The Dunning-Kruger effect suggests you may not be as smrat (sic) as you think.
In the field of psychology, the Dunning Kruger effect is a cognitive bias in which people with low ability at a task overestimate their ability.
Wikipedia
I have commented that I was much smarter when I was younger. I have since realized my limitations, and the importance of asking smarter folks, or real experts about topics.
Who can you trust? That is a good query. Trust someone with a good track record, who has made sensible suggestions before. I would shy away from the advice from a guy you met in a bar, who told you that Fart Coin was going to explode.
Remember some sage advice from Preet B., “I am an Indexer, I don’t care what the market did!”, a calm perspective on investing.
Should you believe me? That’s another thought provoking concept.
- Believe me, when I talk about my mistakes, and there are many of them out there. I learned far too much from the school of hard knocks.
- Warnings of who to be wary of? Certainly consider those.
- If this web page suddenly espouses buy Gold Futures, Bitcoin or anything else, it has been hacked, and just ignore it. Also, run a malware checker on your system.
Yes, I have talked about ideal profiles, but they are either Index Funds, or ETF Index Funds. These are suggestions, that you should monitor, before diving in. This too conservative portfolio is from my past. Those index funds were good, but still have higher Management fees, than you should pay. You can get the same for much lower MERs in many ETFs. If you want something conservative buy VCNS .
Not sure what the young person’s perspectives might be on this. Most grew up online watching “experts” shout advice on TikTok, YouTube, or from whichever bro in the group chat bought crypto at 3 a.m. They’re painfully aware that confidence ≠ competence especially when their rent is $2,200 for a lovely broom closet in Toronto. I hope they appreciate any article that says: “It’s okay not to know everything, but please for the love of poutine don’t take investment advice from a Tik-Tok Video Entity.”
Key Terms to Remember
- Dunning-Kruger effect: overestimating your own skill
- Overconfidence bias: trusting your gut more than real evidence
- Halo effect: thinking someone is smart because they sound smart
- Authority bias: believing over confident strangers
- Optimism bias: “It’ll work out!” (No, it won’t.)
- Cognitive Biases based on Misinformation , or creating misinformation or just plain stupidity. If you don’t really understand it, keep your thoughts to yourself!
Useful Canadian links:
- https://www.canada.ca/en/financial-consumer-agency.html
- Money$chool run by our friend Preet B. well thought out concepts, go watch some (yeh, I did say that thing about bros on videos, didn’t I?)
- https://www.osfi-bsif.gc.ca
- https://michaeljamesonmoney.com/ he has forgotten more about money than I ever knew
- https://thewealthybarber.com/ why aren’t you already following him?
A Short FAQ
It’s when people think they’re financial geniuses despite being dangerously misinformed. Fools rush in?
Look for track records, evidence, and consistency not loud confidence or bar-room charisma.
Only if you can verify it, understand it, and it doesn’t involve Fart Coin, dog-themed tokens, or “guaranteed” anything. If it relies on an Oligarch’s good will, also run away quickly.
Grok’s perspective on this:
Here are some clear, real-world examples of the Dunning-Kruger effect in investing—where people with limited knowledge or skill dramatically overestimate their abilities and lose money as a result:
The 2021 Meme-Stock Trader
A Reddit user with almost no investing experience reads a few WallStreetBets posts, believes he has “figured out” how short squeezes work better than hedge funds, YOLOs his entire savings into GameStop or AMC at the absolute peak, then loses 80–95 % when the frenzy ends. He was certain he was a genius… right until he wasn’t.
The Crypto Bro Who “Did His Own Research”
Watches a few YouTube videos, reads a whitepaper once, and declares himself an expert on blockchain. Puts life savings into Shiba Inu, SafeMoon, or some random 2021 ICO because “it’s the next Bitcoin.” Convinces friends to do the same. Most of these coins go to near-zero, but he still insists in 2025 that he was simply “early.”
The Options Rookie on Robinhood
New trader discovers 0DTE options, buys $50 calls on a stock he saw mentioned on TikTok because “it’s going to the moon.” Has no idea what implied volatility, gamma, or theta are. Loses 100 % of the premium in hours, then posts “The market is rigged” instead of admitting he didn’t know what he was doing.
The Guy Who Beats the Market for One Year and Starts a Newsletter
Gets lucky picking a handful of tech stocks in 2020, returns +120 % while the S&P 500 is up 16 %. Immediately believes he has superior insight, starts charging $2,000/yr for picks. The next three years he dramatically underperforms but still insists he’s in the top 1 % of investors.
The “Bitcoin Since 2011” Bragger Who Actually Bought in 2017
Constantly lectures everyone about how only idiots don’t own Bitcoin, claims he’s been in since the “early days.” In reality bought the top in Dec 2017, sold in despair at $3,500 in 2018, then bought back in at $60k in 2021 and now tells everyone he’s a long-term HODLer.
The Overconfident Day Trader
Reads one book (probably “How to Day Trade for a Living”), paper-trades profitably for two months, goes live, and within six months blows up the account. Classic line: “If you follow my rules you can’t lose” — said right before breaking every one of his own rules on a revenge trade.
The Friend Who Gives Stock Tips at Parties
Has a full-time job unrelated to finance, but because he made money on Tesla or Nvidia, now authoritatively tells everyone which penny stock or SPAC is “the next 100-bagger.” Track record over 5+ years is almost always negative, but confidence level remains at 100 %.
The Leveraged ETF Holder
Buys 3x bull ETF (TQQQ, SOXL, etc.) because “the market always goes up long term.” Doesn’t understand decay/volatility drag. Holds through a 20 % market drop and wakes up to −70 % losses in weeks, then screams about manipulation.
The “I Don’t Need Index Funds, I’m Smarter Than Average” Guy
Refuses to buy simple S&P 500 index funds because “80 % of fund managers underperform.” Proceeds to pick individual stocks himself and… joins the 80–90 % who underperform over the next decade, but still insists active investing is easy.
The 2025 AI Token Frenzy Participant
Sees a new AI coin pump 10x in a week, declares “AI is the future” and apes in at the top with 50–100 % of net worth because he “understands the tech.” Coin dumps 95 % in the following month. Still waiting for “the real bull run” years later.
The common thread: low experience + early random success (or watching others succeed) → extreme overconfidence → catastrophic risk-taking → big losses → refusal to update beliefs.
The antidote is simple but rare: intellectual humility, long-term data, and sticking to boring, evidence-based strategies (e.g., low-cost index funds) instead of chasing the latest shiny object.