Are stock investors getting too confident about making right decisions?

Confidence is key in the world of investing, impacting risk, strategy and, ultimately, helping to dictate returns and losses. But what drives confidence, how important is expert advice, and could overconfidence impact performance?

Our survey of more than 4,400 affluent and high-net-worth investors across Asia, Africa, and the Middle East sets out to answer these questions, revealing that there is a high level of confidence among investors and in some cases, this is impacting returns.

Conducted in partnership with business school INSEAD, our research found that 93% of respondents believe their investment performance capability – their ability to invest and make returns – is equal to, or better than, their fellow investors. Meanwhile, more than eight in 10 believe their capability to be equal to, or better than, professional asset managers.

Are these results evidence of overconfidence bias, where inflated confidence leads to decisions against sound financial judgement, or do investors going it alone really outperform those who seek professional advice?

While some unadvised investors see greater returns than their peers, it’s not always the case, suggesting many of these respondents are overconfident.

Our survey results show that 94% of investors who relied heavily on financial advice saw up to 10% in returns – higher than 88% of investors who made decisions based on their own judgement.

Investors deciding against financial advice were also more likely to lose on their investments. Of those that made losses, the number that relied mostly on their own judgement was three times higher than those who sought professional guidance.

So if the results show that going it alone can come at a cost, what could be causing the elevated levels of confidence as found in our survey?

Part of the answer could be strong past performance, creating the expectation of strong future growth. US indices and many local indices either reached new highs or saw significant gains at times over the past two years, providing investors with an expectation of future profits.

Another reason could be the volume of information investors have at their disposal to aid their decision making. Our survey found that 24% of respondents read financial publications and the same proportion uses insights from banks and financial institutions, while 11% of them turn to social media for guidance. With all this information at their fingertips, it could be that many investors don’t feel the need to seek out dedicated professional help.

The growth of online trading and investment platforms may also be playing a part, making it easier for investors to trade without any input from professionals. According to Market Research Future, the size of the online investment platform market is set to grow nearly three times from an estimated $2.6 billion in 2024 to $7.37 billion by 2032.

Despite past performance and access to more data than ever before, overconfident investors are not only more likely to suffer in the short term, a rejection of sound expert advice could lead to long-term underperformance. Professional advisors have the benefit of years of training, deep market insights and a more holistic view of financial goals.

To mitigate overconfidence bias, Standard Chartered uses quantitative models to provide a range of anchors for our investment committee – a diverse group of experts responsible for forming cross-asset investment views, shared with clients through financial advisors. This ensures that different perspectives are discussed and no single person has an outsized influence on the outcome.

Indeed, some of the overconfident respondents in the survey – despite their self-belief – do acknowledge the benefit of seeking help from asset managers. Of those that go it alone, 35% shared that they occasionally turn to the professionals when making decisions about their investments.

Overconfidence can be costly but remaining confident, yet alert, is vital. Investors must recognise that achieving success is about knowing when to trust your judgement and when to seek guidance about the complexities of the market.