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The surge in US technology shares has prompted many analysts to draw parallels with the technology bubble of 1998-2000. While many of today’s hot tech stocks are at least making money, which most dotcoms weren’t, there are several similarities between the two booms.
At the height of the dotcom era, for instance, many people were quitting their day jobs to trade the stockmarket full-time as day traders. Today, the rise of commission-free trading apps, most notably Robinhood, has enticed many ordinary investors into the market, causing shares in certain firms to go haywire. One big winner has been video-game retailer
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T IS better to be lucky than good. This is the customary quip of poker players who owe success in a big pot to an improbable draw from the deck. In card games it is usually clear whom fortune has favoured. Not so in investing. The randomness of financial markets makes it hard to distinguish a good investor from a lucky one. It is especially hard for people to assess their own skills.
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This long-understood problem has fresh resonance. In the spring no-cost brokerages that cater to small investors reported a surge in new accounts and in trading activity. Many of these newbie investors made money. “Learning from Noise”, a forthcoming paper in the Journal of Financial Economics by Santosh Anagol, Vimal Balasubramaniam and Tarun Ramadorai, sheds light on how these investors might misinterpret their success. Their study’s main finding is that retail investors who were randomly allocated shares in successful India