Today I have a very interesting and informative article from the New York Times that first appeared in 2011. Don't let the fact that it's three years old put you off—the author's observations on the human side of investing are always timely.

It was written by Daniel Kahneman, author of our cover article last year at this time, Intuitions vs. Formulas. This article is excerpted from the same book as was our cover article.

I like running articles on the psychology of investing because, as I've pointed out many times, we are our own worst enemies when it comes to making good investment-related decisions. Any insights that will help us manage ourselves better are welcome.

The article is a little longish but well worth your time. Here are a few excerpts to whet your appetite:

The confidence we experience as we make a judgment is not a reasoned evaluation of the probability that it is right. Confidence is a feeling, one determined mostly by the coherence of the story and by the ease with which it comes to mind, even when the evidence for the story is sparse and unreliable....An individual who expresses high confidence probably has a good story, which may or may not be true...

Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match. The first demonstration of this startling conclusion was put forward by Terry Odean...

In a paper titled “Trading Is Hazardous to Your Wealth,” Odean and his colleague Brad Barber showed that, on average, the most active traders had the poorest results, while those who traded the least earned the highest returns.

In another paper, “Boys Will Be Boys,” they reported that men act on their useless ideas significantly more often than women do, and that as a result women achieve better investment results than men...

Individual investors like to lock in their gains; they sell “winners,” stocks whose prices have gone up, and they hang on to their losers. Unfortunately for them, in the short run going forward recent winners tend to do better than recent losers...

Mutual funds are run by highly experienced and hard-working professionals who buy and sell stocks to achieve the best possible results for their clients. Nevertheless...at least two out of every three mutual funds underperform the overall market in any given year.

How do we distinguish the justified confidence of experts from the sincere overconfidence of professionals who do not know they are out of their depth? We can believe an expert who admits uncertainty but cannot take expressions of high confidence at face value...

Overconfident professionals sincerely believe they have expertise, act as experts and look like experts. You will have to struggle to remind yourself that they may be in the grip of an illusion.

It might seem that I may be undermining my own credibility when I quote a suggestion that professionals who "sincerely believe they have expertise" may be self-deluded. The key word in the quote in "overconfident." We have never been overconfident. Publishing an investing newsletter can be a humbling business. I wrote about this in "A Man's Got to Know His Limitations" where I freely admitted we make "no pretense that we know what the future holds." That's why we rely on mechanical trend-following strategies.

Ironically, our humble admission of uncertainty, according to Kahneman, makes us experts you "can believe," in whom your confidence is "justified." Just another strange and unexpected turn of events in the upside-down world of investing.