Why do people micromanage their investments if S&P500 beats most managed funds in the long term?


I just don’t understand why someone would risk their money on marginally better gains over the S&P500, when the odds are stacked against you. Also I’m not talking about someone else managing your money, I’m talking about you yourself going the distance by learning about stocks, picking the stocks you think are winners and then trying to capitalize on them.

In: Economics

When an investor makes changes, they get the feeling of control. The feeling of control is powerful And they delude themself. Consider driving, because they controlling the car, or personally trust the driver of the car, they overestimate their ability to react and avoided accidents. But yet that same person might have a feer of flying. I see S&P500 like flying. You make one decision at the beginning, and you do nothing except sit there the whole ride.

Not necessarily true. Cycles happen. Irrational Exuberance, by Robert Shiller, is an excellent book on it. Warning: it’s dry reading, and it has technical investing stuff in it.

Also, S&P500 isn’t an investment. It is a snapshot of 500 companies. You still have to invest in those companies. Companies enter and leave that list, and companies on that list don’t always do well.

That is similar to asking why do casinos make so much money from gamblers. No one believes that casinos are charities and nearly everyone understands that the odds are against them. People are overconfident of their ability. See Dunning Kruger effect.

Beat case scenario: they have knowledge about the industry that helps them make a better guess than a typical investor.

Likely case: they are basically gambling.