Investors like to think that they h

Investors like to think that they have more control over theirinvestments than they actually do. Although do-it-yourself investorshave control over their asset allocations, security selection, and markettiming, they don’t have control over the outcomes resultingfrom these decisions. The illusion of control can lead to excessivetrading, especially among online traders, with the accompanyingcosts and concentrated portfolios. One study finds that the moretraders think they are in control, the worse is their actual performance.13 The illusion of control can also stop investors from learningfrom their mistakes and being sensitive to feedback.To lessen the illusion of control, you should stick to a wellcraftedinvestment plan and avoid unnecessary trading. You canalso seek the opinion of others and keep records of trades to see ifyou are successful at controlling investment outcomes. Once yourealize your control in markets and investments is illusory, youcan begin practicing flexibility and conserve your energy for thosematters over which you can exert influence.Hindsight BiasHindsight bias is the tendency to see past events as having beenpredictable and reasonable to expect before they occurred. With thebenefit of hindsight, the “correct” choice at the time of the decisionseems obvious later, but it really was not at the time. This bias, alsoknown as the “knew-it-all-along effect,” is difficult to eradicatebecause it is fundamental to the human experience. A problem withhindsight bias is that someone actually didn’t know it all along, butsimply thought that he did. For example, the United States experienceda housing bubble in which housing prices peaked in early2006 and then started to decline in 2006 and 2007. After the bubbleburst, many investors said “I knew that would happen” but failedto exit the real estate market before it was too late.