The Dunning-Kruger Effect is a cognitive bias in which people with low ability at a given task are prone to overestimate their ability at that task.
Put simply, humans are notoriously incapable of objective evaluation of their competency levels.
Dunning-Kruger Effect 101
In a year when the markets have minted many new self-proclaimed geniuses, it is worth remembering the Dunning-Kruger Effect.
But what is the Dunning-Kruger Effect and how does it work?
Here's Dunning-Kruger Effect 101!
👇👇👇
The Dunning-Kruger Effect is a cognitive bias in which people with low ability at a given task are prone to overestimate their ability at that task.
Put simply, humans are notoriously incapable of objective evaluation of their competency levels.
Their paper, entitled Unskilled and Unaware of It, summarized, "People tend to hold overly favorable views of their abilities in many social and intellectual domains."
He hadn't worn a mask.
Instead, he had put lemon juice on his face, believing it would make him invisible to cameras.
Even after he was caught, he was legitimately incredulous that his plan with the lemon juice hadn't worked.
Their finding: the worst performers consistently overestimated their abilities relative to others.
Let's look at a few examples of this bias in action and how you can avoid its pitfalls.
As the saying goes, "everyone is a genius in a bull market."
When markets are ripping and your portfolio seems to grow by the day, many fall victim to the Dunning-Kruger Effect.
We may wrongly attribute this performance to our innate talent as investors.
With politics, intellectual humility is an aberration, not the norm.
Politicians espouse policy ideas with great confidence even if they have a weak handle of the details.
It's not shocking that we see Cobra Effects in the policy realm. https://t.co/gKuHcJTjW7
Cobra Effect 101
— Sahil Bloom (@SahilBloom) October 21, 2020
With the rise of government and central bank intervention in the economy and markets, the term "cobra effect" has experienced a revival.
But what is a "cobra effect" and how does it work?
Here's Cobra Effect 101!
\U0001f447\U0001f447\U0001f447 pic.twitter.com/Gs1199yes5
Everyone has had that one boss - the know-it-all who actually knows very little.
These bosses (who typically get stuck in middle management) hold back organizations from high performance.
They are easy to spot - we all know who they are.
Beware this boss!
So how do we avoid it?
Here are a few strategies.
👇👇👇
The Circle of Competence is the set of topic areas that align with a person's expertise.
Be ruthless in identifying and protecting the boundaries of your Circle of Competence.
Hint: it's usually smaller than you think.
Most people have an inherent discomfort with saying, "I don't know."
Change that. Embrace what you don't know.
The world would be a much better, more efficient place if we stripped out the fluff and cut to the "I don't know" chase.
Think you know something? Challenge yourself, your reasoning, and your assumptions as a matter of practice.
It's uncomfortable, but it is also essential to creating non-linear outcomes. https://t.co/31EZVZDLM1
First Principles 101
— Sahil Bloom (@SahilBloom) November 19, 2020
Many of the world's greatest thinkers and doers - from @naval and @elonmusk to @nntaleb and @chamath - tout the importance of first principles thinking.
But what is "first principles thinking" and how does it work?
Here's First Principles 101!
\U0001f447\U0001f447\U0001f447 pic.twitter.com/WCAQzSFyn4
Know your competencies, focus on them.
Know your incompetencies, avoid (or outsource) them.
So the next time you catch yourself marveling at your skill at a task, remember the Dunning-Kruger Effect and the strategies for avoiding it.
For more on this topic, check out the resources below:
https://t.co/5TpIxyWjCD
https://t.co/mYfcPw2rcH
https://t.co/9lmroooQHn
https://t.co/2rlAXpPGt6
https://t.co/sAqJLE1gJi
https://t.co/5vAlRTbi5u
For more educational threads on business, money, finance, and economics, follow me on Twitter and check out my meta-thread below. https://t.co/53UhhfzIcp
1/ An Allegory of Finance
— Sahil Bloom (@SahilBloom) July 18, 2020
I have been posting a lot of educational (and humorous!) threads on finance, money, and economics.
My mission is simple: to demystify these concepts and make them accessible to everyone.
All of the threads can be found below. Enjoy and please share!
More from Sahil Bloom
From a young age, we are taught to view the world as black and white.
But many of life’s most important truths appear contradictory on the surface.
THREAD: 15 powerful paradoxes (on growth, business, careers, and life):
Sprezzatura (“Studied Carelessness”)
You have to put in more effort to make something appear effortless.
Effortless, elegant performances are often the result of a large volume of effortful, gritty practice.
Simple is not simple.
Slow Down to Speed Up
Want to speed up? Try slowing down.
Slowing down gives you the time to be deliberate with your actions.
You can focus, gather energy, and deploy your resources more efficiently.
It allows you to focus on leverage and ROI.
Move slow to move fast.
Learn More to Know Less
The wisdom paradox - the more you learn, the more you are exposed to the immense unknown.
This should be empowering, not frightening.
“The more I learn, the more I realize how much I don't know.” - Albert Einstein
Embrace lifelong learning.
Shrink to Grow
Growth is never linear.
In order to grow, sometimes you need to shrink.
Shedding deadweight may feel like a step back, but it is a necessity for long-term growth.
This principle applies to your career, startup, or life.
One step back for two steps forward.
But many of life’s most important truths appear contradictory on the surface.
THREAD: 15 powerful paradoxes (on growth, business, careers, and life):
Sprezzatura (“Studied Carelessness”)
You have to put in more effort to make something appear effortless.
Effortless, elegant performances are often the result of a large volume of effortful, gritty practice.
Simple is not simple.
Slow Down to Speed Up
Want to speed up? Try slowing down.
Slowing down gives you the time to be deliberate with your actions.
You can focus, gather energy, and deploy your resources more efficiently.
It allows you to focus on leverage and ROI.
Move slow to move fast.
Learn More to Know Less
The wisdom paradox - the more you learn, the more you are exposed to the immense unknown.
This should be empowering, not frightening.
“The more I learn, the more I realize how much I don't know.” - Albert Einstein
Embrace lifelong learning.
Lifelong learning is a competitive advantage.
— Sahil Bloom (@SahilBloom) June 6, 2021
But contrary to what you\u2019ve been told, lifelong learners are built, not born.
THREAD: 20 lifelong learning habits you can start developing today.
Shrink to Grow
Growth is never linear.
In order to grow, sometimes you need to shrink.
Shedding deadweight may feel like a step back, but it is a necessity for long-term growth.
This principle applies to your career, startup, or life.
One step back for two steps forward.
Shared a lot of wins publicly in 2021, so it feels appropriate to share the losses just as publicly.
Here are my 10 biggest Ls from 2021 (and what I learned from each one):
Dopamine Addiction
Humans were not made for social media—the dopamine hits are dangerous.
I fell victim.
On several occasions, I found myself constantly refreshing my notifications on a viral thread.
It was gross.
I’m learning to physically force separation to avoid it.
Hustle Culture Fail
I spent the better part of the last decade as a hustle culture aficionado.
Then I burned myself out and was totally incapable of thinking creatively.
I made a change. Now I:
• Work like a lion
• Sleep 8 hours
• Take more walks
My life & work have 10Xed.
Solana Fail
I invested in Solana early and was riding high when it hit $30+ in April—10X+ on my investment.
I sold it and thought I was the next Warren Buffett.
Then it hit $100, $200, & $250—as I stubbornly sat on the sidelines refusing to re-enter.
I am not Warren Buffett.
The Hedonic Treadmill
I tweeted this in May—and then failed to practice what I preached.
Every win felt a bit less exciting. It’s part of our biology, but it was no way to live.
Measure internally, not externally.
Here are my 10 biggest Ls from 2021 (and what I learned from each one):
Dopamine Addiction
Humans were not made for social media—the dopamine hits are dangerous.
I fell victim.
On several occasions, I found myself constantly refreshing my notifications on a viral thread.
It was gross.
I’m learning to physically force separation to avoid it.
Hustle Culture Fail
I spent the better part of the last decade as a hustle culture aficionado.
Then I burned myself out and was totally incapable of thinking creatively.
I made a change. Now I:
• Work like a lion
• Sleep 8 hours
• Take more walks
My life & work have 10Xed.
Solana Fail
I invested in Solana early and was riding high when it hit $30+ in April—10X+ on my investment.
I sold it and thought I was the next Warren Buffett.
Then it hit $100, $200, & $250—as I stubbornly sat on the sidelines refusing to re-enter.
I am not Warren Buffett.
The Hedonic Treadmill
I tweeted this in May—and then failed to practice what I preached.
Every win felt a bit less exciting. It’s part of our biology, but it was no way to live.
Measure internally, not externally.
The Hedonic Treadmill is real.
— Sahil Bloom (@SahilBloom) May 21, 2021
Humans have a tendency to quickly return to a baseline level of happiness after positive events.
Step off the treadmill.
Focus on increasing your happiness baseline, not on the height or frequency of the spikes above it.
More from Trading
FREE MINI STOCK MBA
If you wish to learn abt trading,psychology,options,business etc
You can go through this thread.
Other than this I do post videos on my YT channel : -Abhishek Kar & Tradiostation
-Intraday views on FREE telegram : Abhishek Kar Official
RT will be appreciated
1. Threads to learn Options
https://t.co/wabkek43I8
2. https://t.co/OIDenHKdWN
3. Some core rules to investing
https://t.co/37d1pygp7P
4.Summing up 2020 Trading lessons
https://t.co/jSUb1lSGbQ
5.Effects of margin change on
6. Exciting story about a trader who destroyed a Bank
https://t.co/CsEEhIsD3q
7. Some Thought Provoking facts about stock markets
https://t.co/IjxpX5Wx24
8. A dose on Trading and investing
9. Top 5 resources to learn everything about stocks
https://t.co/6KnIySBGIG
10. Some Pro Tips on Trading
https://t.co/EiSGikt7jv
11. Wisdom on stuffs you should not do
https://t.co/bI2dH0XTSS
12. Reasons why you are losing the
13. The DARK side of stock market
https://t.co/qsteGcbquI
14. Stocks where you should NOT invest
https://t.co/2tD5q0K3UQ
15. Lessons from MILLIONAIRE trader
https://t.co/Pec6LmUtGa
16. Lessons from my
If you wish to learn abt trading,psychology,options,business etc
You can go through this thread.
Other than this I do post videos on my YT channel : -Abhishek Kar & Tradiostation
-Intraday views on FREE telegram : Abhishek Kar Official
RT will be appreciated
1. Threads to learn Options
https://t.co/wabkek43I8
2. https://t.co/OIDenHKdWN
3. Some core rules to investing
https://t.co/37d1pygp7P
4.Summing up 2020 Trading lessons
https://t.co/jSUb1lSGbQ
5.Effects of margin change on
\U0001d413\U0001d421\U0001d42b\U0001d41e\U0001d41a\U0001d41d \U0001d41f\U0001d428\U0001d42b \U0001d40e\U0001d429\U0001d42d\U0001d422\U0001d428\U0001d427\U0001d42c
— Abhishek Kar (@Abhishekkar_) December 29, 2020
The entire thread will have some quick pointers on options trading. These bullet points are based on experience and learning and even if you are completely new,will help you to build some perspective. So,lets go :
6. Exciting story about a trader who destroyed a Bank
https://t.co/CsEEhIsD3q
7. Some Thought Provoking facts about stock markets
https://t.co/IjxpX5Wx24
8. A dose on Trading and investing
\U0001d413\U0001d42b\U0001d41a\U0001d41d\U0001d41e\U0001d42b \U0001d430\U0001d421\U0001d428 \U0001d41d\U0001d41e\U0001d42c\U0001d42d\U0001d42b\U0001d428\U0001d432\U0001d41e\U0001d41d \U0001d401\U0001d41a\U0001d42b\U0001d422\U0001d427\U0001d420\U0001d42c \U0001d401\U0001d41a\U0001d427\U0001d424
— Abhishek Kar (@Abhishekkar_) October 11, 2020
This thread is about the trader who with his reckless trading destroyed the entire Barings bank. In case you would like to read more such informative threads,do not forget to retweet and share as acts as encouragement
9. Top 5 resources to learn everything about stocks
https://t.co/6KnIySBGIG
10. Some Pro Tips on Trading
https://t.co/EiSGikt7jv
11. Wisdom on stuffs you should not do
https://t.co/bI2dH0XTSS
12. Reasons why you are losing the
\U0001d5e7\U0001d5db\U0001d5d8 \U0001d5e7\U0001d5e2\U0001d5e3 \U0001d7f1 \U0001d5e7\U0001d5db\U0001d5e5\U0001d5d8\U0001d5d4\U0001d5d7
— Abhishek Kar (@Abhishekkar_) July 21, 2020
The following thread will have top 5 for everything you need in the world of stock market and as learner who wants to REALLY grow. Make sure you #retweet the thread and let it reach the maximum number of people as sharing is caring.
13. The DARK side of stock market
https://t.co/qsteGcbquI
14. Stocks where you should NOT invest
https://t.co/2tD5q0K3UQ
15. Lessons from MILLIONAIRE trader
https://t.co/Pec6LmUtGa
16. Lessons from my
\U0001d5e7\U0001d5db\U0001d5d8 \U0001d5d7\U0001d5d4\U0001d5e5\U0001d5de \U0001d5e6\U0001d5dc\U0001d5d7\U0001d5d8 \U0001d5e2\U0001d5d9 \U0001d5e6\U0001d5e7\U0001d5e2\U0001d5d6\U0001d5de \U0001d5e7\U0001d5e5\U0001d5d4\U0001d5d7\U0001d5dc\U0001d5e1\U0001d5da
— Abhishek Kar (@Abhishekkar_) July 6, 2020
In the following thread you will understand a few dark truths about stock trading as a profession.
Sadly everyone touches the only green side but there has to be a balance. Don't forget to #retweet for wider reach.
Thread on Short straddle with adjustments:
Short straddle is non-directional strategy
Selling same strike price CALL/PUT option same underlying with same expiry.
Nifty Spot at 14353, So you can sell 14350 CE as well 14350 PE of 14 Jan. Expiry.
(1/n)
*RETWEET for max response
Bullish short straddle: Selling 14400 CE and 14400 PE of same expiry.
Bearish short straddle: Selling 14250 CE and 14250 PE of same expiry.
You can sell straddle as per your market view.
If you are natural view sell CE and PE at ATM strike.
(2/n)
Short straddle has limited profit potential (only premium) and unlimited risk without adjustment.
In Example, Short straddle of 14350, Breakeven is (14131.0-14569.0), need 1.7Lac Margin to sell straddle.
Maximum profit: 16k and Loss: Unlimited, Winning probability: 50%
(3/n)
If market staying near at 14350 then win. Probability increase slowly. Rewards also increase slowly.
Volatility(IV) is also play important role in selling straddle, Like If IV increase so straddle premium increase and IV cool off so premium casually comes down.
(4/n)
Short straddle adjustment:
https://t.co/59Lr64kEtK way to limit the overnight risk.
Convert short straddle in Ironfly, its nothing we have to add long strangle in short straddle it become Ironfly. It gives the good Risk Rewards.
(5/n)
Short straddle is non-directional strategy
Selling same strike price CALL/PUT option same underlying with same expiry.
Nifty Spot at 14353, So you can sell 14350 CE as well 14350 PE of 14 Jan. Expiry.
(1/n)
*RETWEET for max response
Bullish short straddle: Selling 14400 CE and 14400 PE of same expiry.
Bearish short straddle: Selling 14250 CE and 14250 PE of same expiry.
You can sell straddle as per your market view.
If you are natural view sell CE and PE at ATM strike.
(2/n)
Short straddle has limited profit potential (only premium) and unlimited risk without adjustment.
In Example, Short straddle of 14350, Breakeven is (14131.0-14569.0), need 1.7Lac Margin to sell straddle.
Maximum profit: 16k and Loss: Unlimited, Winning probability: 50%
(3/n)
If market staying near at 14350 then win. Probability increase slowly. Rewards also increase slowly.
Volatility(IV) is also play important role in selling straddle, Like If IV increase so straddle premium increase and IV cool off so premium casually comes down.
(4/n)
Short straddle adjustment:
https://t.co/59Lr64kEtK way to limit the overnight risk.
Convert short straddle in Ironfly, its nothing we have to add long strangle in short straddle it become Ironfly. It gives the good Risk Rewards.
(5/n)
You May Also Like
So the cryptocurrency industry has basically two products, one which is relatively benign and doesn't have product market fit, and one which is malignant and does. The industry has a weird superposition of understanding this fact and (strategically?) not understanding it.
The benign product is sovereign programmable money, which is historically a niche interest of folks with a relatively clustered set of beliefs about the state, the literary merit of Snow Crash, and the utility of gold to the modern economy.
This product has narrow appeal and, accordingly, is worth about as much as everything else on a 486 sitting in someone's basement is worth.
The other product is investment scams, which have approximately the best product market fit of anything produced by humans. In no age, in no country, in no city, at no level of sophistication do people consistently say "Actually I would prefer not to get money for nothing."
This product needs the exchanges like they need oxygen, because the value of it is directly tied to having payment rails to move real currency into the ecosystem and some jurisdictional and regulatory legerdemain to stay one step ahead of the banhammer.
If everyone was holding bitcoin on the old x86 in their parents basement, we would be finding a price bottom. The problem is the risk is all pooled at a few brokerages and a network of rotten exchanges with counter party risk that makes AIG circa 2008 look like a good credit.
— Greg Wester (@gwestr) November 25, 2018
The benign product is sovereign programmable money, which is historically a niche interest of folks with a relatively clustered set of beliefs about the state, the literary merit of Snow Crash, and the utility of gold to the modern economy.
This product has narrow appeal and, accordingly, is worth about as much as everything else on a 486 sitting in someone's basement is worth.
The other product is investment scams, which have approximately the best product market fit of anything produced by humans. In no age, in no country, in no city, at no level of sophistication do people consistently say "Actually I would prefer not to get money for nothing."
This product needs the exchanges like they need oxygen, because the value of it is directly tied to having payment rails to move real currency into the ecosystem and some jurisdictional and regulatory legerdemain to stay one step ahead of the banhammer.