Overconfidence may be hazardous to your wealth

An excerpt from "The little book of behavioural investing" goes as - "If the price is right then why would anyone want to trade, so volumes should be zero. As soon as you add overconfidence into the market models, volumes and turnover explode because everyone thinks they know more than everyone else, and hence they trade more".

Whether  it's a personal, professional or trading decision, the presence of overconfidence increases the chances of things going wrong. And you know how overconfidence sounds in trading, it's like - 

I can time the market. I know when to buy and when to sell.

This company's share would never go down. 

I believe in this brand. It's too big to fail.

Let me tell you, stock market is full of surprises. While it's good to have faith in a company or a stock or on self, do remember there's always chances of it being proved wrong and hence comes the role of risk management. 

So, what you can do to avoid overconfidence: 

Accept, the fact that no one can perfectly time the market. 

Always keep slight doubt - "What if I go wrong? What if the company fails? What if the stock crashes?"

Diversify - not only across stocks, but also in other financial securities. Keep some amount in Fixed Deposits, in PPF, in mutual funds etc.

Wishing you success in your investments.