PALO ALTO, Calif. (MarketWatch) — In their 1978 song, “What a Fool Believes,” the Doobie Brothers spin a tale of a man who is self-deceived, trusting a lie of his own making. Somehow, this poor sap has convinced himself that he is a Casanova, the apple of some woman’s eye, when in fact he isn’t even a blip on her radar.
This fictitious character’s predicament is not much different from what many stock traders face. In love with the Wall Street fantasy of trouncing the markets through laser-like stock selection, such investors prefer to see themselves as a type of Warren Buffett — processing data with superhuman accuracy to distill the investment insight of the day.
Such investors have convinced themselves that their fantasy is in fact reality — that they can overcome a million I.Q. points, a throng of Ivy League MBAs, and software systems engineered by rocket scientists, and pick a needle of a winner out of a massive equity haystack.