Baseball fans will remember this, from when Rickey Henderson broke Lou Brock’s all-time stolen base record. Rickey held second base in the air, and said, “I AM THE GREATEST OF ALL TIME!”—with Lou Brock standing next to him!
Rickey Henderson never suffered from a lack of confidence. I’m sure if you asked him, he’d tell you that he could still play baseball and steal 50 bases a year.
I also remember the anecdote about Lenny Dykstra from Moneyball. A young Billy Beane was sitting with Dykstra in the dugout, watching Steve Carlton warm up. Dykstra said to Beane, “Who is that old man? I’m going to stick him.”
Beane replied, “Lenny, that’s Steve Carlton, one of the greatest pitchers ever. He’s number two on the all-time strikeout list.”
Dykstra said, “I’m going to stick him.”
I think baseball perhaps is one endeavor where you can never have too much confidence. Same with a lot of things in life. In investing, not the case. You need to have a healthy dose of skepticism in your own abilities.
Trump, for Example
Trump obviously does not suffer from a lack of confidence. Nate Silver didn’t, either.
The well-known statistician predicted early and often that Trump wouldn’t last long in the Republican presidential race. And he wasn’t alone: a lot of people said Trump would flame out over time. Pretty much everyone was saying it.
What distinguished Nate Silver from everyone else was the confidence with which he was saying it. He was all but guaranteeing it. He operates in a world filled with mathematical models that had never before failed him. Then they failed him.
When you deal with large quantities of money, you try not to say things like “This absolutely, positively cannot happen.” Because anything can happen. It’s just a matter of measuring the probability, no matter how remote.
There is no such thing as a sure thing.
But people outside of finance often don’t understand that. They go through life with a level of certainty that people like us just don’t have.
Trading makes you really humble. You’re wrong a lot, and you have to admit that you’re wrong, or you will get carried out.
Typically, people get into trouble with overconfidence when they find themselves in a trade they feel strongly about and it progressively goes against them, day after day after day. So they double and triple down and keep adding to the position.