The Perils of Familiarity Bias in Investing

This chapter examines the risks associated with familiarity bias, where investors are drawn to well-known companies, leading to misguided financial decisions and significant losses. Historical examples, such as Kodak and Blockbuster, illustrate that even dominant companies can fail, emphasizing the need for diversification and awareness of psychological biases. The chapter challenges common misconceptions about average returns and underscores the importance of understanding true performance rather than being swayed by emotional reactions and instincts.