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Gut reaction?

Most things are fundamentally too complicated to easily guess the outcome, Silver explains. Overconfidence causes us to discount the risks and plunge ahead, only to find out later how wrong we can really be.

So, should you never buy a single company’s stock? Or invest in single asset classes? Well, that’s a bit much, perhaps.

But retirement investors should understand that the “gut feeling” they have that a stock will rise or that an asset class is due to rebound is about 50% knowledge and 50% pure emotion.

Certainty is an emotion, one that blinds you to risk. Anybody who has ever bought a stock at “the bottom” and watched it fall even farther knows this feeling.

“How could the whole market be so wrong?” you think to yourself, “Why don’t they understand the fundamentals at work here?”

The “market” doesn’t know what you personally know. But it also doesn’t overvalue what you mistakenly believe.

That’s why the market sells off some investments from time to time — until it’s the right moment to buy back in.

- Ignore Your ‘Gut Feeling’ About Stocks, Forbes.com, April 22, 2013.

About the author:

Zhang Xin is Trainer at chinadaily.com.cn. He has been with China Daily since 1988, when he graduated from Beijing Foreign Studies University. Write him at: zhangxin@chinadaily.com.cn, or raise a question for potential use in a future column.