But we find they are every bit as confident as those who really do know more. When they have a little good news, they act as if they have a lot. So they buy aggressively from more-informed investors, driving prices up too high, and losing money as a result. The experiment shows that it isn't simply a lack of information that can hurt less-informed investors. Rather, it is their tendency to overestimate the quality of their information.
Serious investors get lots of good news and bad news.
All of these conflicting signals lead them to be a little more careful in drawing conclusions. But casual investors often rely on just a few pieces of information, such as an earnings report or a personal experience with a company. If all they see is one piece of good news, they are much more likely to think the stock is a sure winner. These findings, Bloomfield observed, undercut regulatory proposals to permit the disclosure of corporate financial information in limited, summary formats aimed at those without the time or inclination to study the detailed financial reports now required of publicly traded firms. Our evidence suggests that this assumption is wrong.