The internet is making you a worse investor – Morningstar

By Mark Hulbert
How the ‘Google effect’ affects retirement
Every month is a good month to beef up your financial literacy.
But there is a special focus on it this month, since October is National Retirement Security Month. One of its primary goals, according to the U.S. Senate resolution designating the month, is "increasing the…personal financial literacy of all people in the United States."
Levels of financial literacy have been dismally low for years, of course, so this need is hardly new. Yet our collective financial literacy appears to be facing a new and very modern threat: The internet.
According to research posted this summer on the Social Science Research Network (SSRN), the internet leads investors to think they know more than they really do, and the resulting overconfidence in turn causes their portfolios to perform less well. I first heard about this fascinating research from the always-insightful Joachim Klement, a trustee of the CFA Institute Research Foundation and former head of equity strategy for UBS Wealth Management.
The SSRN study, entitled "Confidence Without Competence: Online Financial Search and Consumer Financial Decision-Making," was conducted by Adrian Ward, a marketing professor at the University of Texas at Austin; Tito Grillo, a professor of marketing, business economics and law at the University of Alberta, and Philip Fernbach, a marketing professor at the University of Colorado at Boulder.
The study reached its provocative conclusion in several steps:
This new study reminds us of the dangers of overconfidence and the virtues of humility. But what I found most significant about the research–and most disturbing–is the pernicious way in which the internet leads us to increase our self-confidence without our even knowing that it is doing so. So even those of us who are trying to resist the dangers of overconfidence may still be led down the primrose path.
This consequence of the internet is not an accident, by the way. Sergey Brin, Google’s co-founder, said at a Google event in 2010 that "We want Google to be the third half of your brain." The authors of this recent study interpret that statement to mean that Google blurs "the boundaries between the knowledge that resides in one’s head and the knowledge that resides on the internet."
Investor beware.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
-Mark Hulbert
(END) Dow Jones Newswires
10-10-22 2007ET
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