People overestimate their Knowledge and Ability, at times claiming knowledge of concepts and events that do not exist and cannot be known, a phenomenon called overclaiming.

One of the most important lessons for investors to learn is that just because there are some investors “apparently” smarter than others, the advantage will not necessarily show up. The reasons are that the market is too vast and too informationally efficient, and there are costs involved in trying to outperform.

Consider the performance of those superstar investors, hedge fund managers, over the last decade. 

As you can see in the table below, over the ten-year period ending December 2020, the HFRX Global Hedge Fund Index underperformed every single major equity asset class by wide margins. It also outperformed virtually riskless one-year Treasuries by just 0.4 percentage point, and underperformed intermediate and long-term Treasuries.