Here's an excellent article by Barry Ritholtz discussing our tendency to lie to ourselves.
Mark Twain: “Everybody lies — every day; every hour; awake; asleep; in his dreams; in his joy; in his mourning.”
In my last column, we discussed my annual rite of Mea Culpa. That’s where I look back at the prior year to evaluate what I got wrong and why. It is a humbling experience designed to make me a better investor, and I have been doing it — in public — for several years. Numerous readers have told me that this is a rarity in the world of finance.
But every year I hear from a small segment of active traders who misread what the discussion is about, seeing it as an invitation to brag about their best trades. Astonishingly, these e-mailers have all significantly outperformed the markets over the years, putting up fantastic return numbers. They never seem to have a losing trade. They sold Apple at exactly $705 and bought gold precisely at the bottom. Even more amazingly, they got out at the market top in October 2007 and bought in at the exact lows in March 2009.
The polite term for these people is “fibbers.” Personally, I say it’s lying.
Mathematical probabilities make these claims of uniformly spectacular track records extremely unlikely. And what I find most intriguing is that these Pinocchio traders (as I call them) are not really lying to you or me, but, rather, to themselves.
Little white lies are told by humans all the time. Indeed, lying is often how we get through each day in a happy little bubble. We spend time and energy rationalizing our own behaviors, beliefs and decision-making processes.