The Expertise Illusion That Could Cost You
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Welcome to Mind Over Money, a weekly newsletter where I share actionable ideas to help you transform your relationship with money to build financial confidence and independence.
Today's topic: Spillover Fallacy
If you study economics or pay attention to economic policies, there's a good chance you've run into the name John Maynard Keynes. He was the economist who showed governments how to make sense of recessions, inflation, and the strange ebb and flow of entire economies. When people call him the father of macroeconomics, it’s not exaggeration—he basically built the field.
So naturally, when he started to invest, he assumed the markets were just the next puzzle to solve. Like a level-up in a game he’d already mastered.
Spoiler alert: they were not.
Keynes thought his mastery of monetary policy gave him a cheat code for the markets. Fresh off publishing a global bestseller that criticized Europe’s post-war financial blunders, he figured: If I can decode the financial system, surely I can forecast currencies too.
So he went big—recklessly big. By late 1919, he’d placed leveraged bets of over £110,000 on European currencies, including massive short positions on the franc, the mark, and the lira. For context, his dollar position alone was more than 30x his annual income.
And then 1920 happened.
The market didn’t move on his timeline as he had expected. While Europe caught a brief wave of optimism, his positions imploded. He was weeks away from financial ruin and only pulled back from the edge by a rescue loan from people who still believed in his potential.
Keynes’ insight wasn’t the issue. His blind spot was believing his knowledge and insights transferred across different domains—from monetary policy and macroeconomics to currency investment—a phenomenon psychologists call Spillover Fallacy.
Spillover Fallacy: The Silent Saboteur
Spillover Fallacy is the mental shortcut that convinces us that success, intelligence, or mastery in one area automatically transfers to another—even when entirely different strengths and skillsets are required.
This bias afflicts highly intelligent, capable, accomplished people, precisely because they’ve experienced real success through deep thinking and problem-solving. The smarter you are, the more convincing the illusion can feel.
With Keynes, this bias showed up in full force.
His expertise in economics was stunning. But the market didn’t work like central banking or wartime policy memos. He could explain national credit cycles better than anyone alive—yet markets priced expectations, sentiment, and behavior, not academic correctness. He assumed that understanding the system meant he could predict how other humans would respond to it. That leap cost him dearly, more than he ever expected.
And then Overconfidence Bias—something we saw in Isaac Newton’s blunder—amplified the mistake. Confidence without boundaries makes every trade feel "obvious," every reversal feel "temporary," and every warning feel "irrelevant."
Spillover Fallacy is Overconfidence’s enabler. It’s the mental bridge that hands your confidence a bigger stage than it was built for.
In our financial lives, Spillover Fallacy might look like:
- Believing you can time markets because you can synthesize complex ideas at work.
- Assuming investing in a trendy new sector will be easy because you built or managed successful teams, companies, or movements.
- Feeling certain your analysis beats collective market wisdom.
- Treating an investment thesis like a passion project, instead of a probabilistic decision.
- Thinking the biggest risk is “losing confidence,” not positioning risk itself.
So how do we overcome it?
How to Avoid Your Own "Keynes in 1920" Moment
Keynes eventually rebuilt his portfolio into something iconic—after he let go of timing markets and started focusing on solid companies instead. But you don’t need to learn the hard way like he did.
A few practical, empowering swaps you can bake into your investing life now:
1. Make room for "I could be wrong"
Before acting on a bold theory or trend, pause for 30 seconds and ask:
- What if the world zig-zags before it zigs?
- Can I stay steady if the market disagrees with me for a while?
These questions ground you in rational thinking and help protect your future self from your overconfidence.
2. Keep a tiny "learning wallet" inside your portfolio
If you’re exploring a new area of investment (i.e. crypto, real estate, currency bets), set an intentional small cap—an amount small enough to learn from, but not big enough to knock you off your path.
3. Decide your limits when you’re calm, not convinced
Make a simple personal rule ahead of time, such as: No single investment idea—no matter how compelling—gets more than 5% of my total portfolio.
Remember that you’re building agency, not seeking adrenaline.
4. Befriend the "bear case"
When you hear a brilliant pitch or shiny promise, look for the "why this might fail" version as well. This is not to kill the dream but to keep your independence intact. The smartest investors don’t just read one headline. They read the footnotes too.
5. Let your values co-pilot your strategy
Markets are psychology and uncertainty in motion—far more human than logical. Your edge isn’t predicting every dip or shift. It’s staying invested in what aligns with stability and long-term meaning.
When it comes to investing, boring is a feature, not a flaw. Not every move needs to feel exciting. The best ones often feel boring and obvious. Legacy often comes from the quiet, sturdy choices—not the flashy gambles.
Final Thought
Keynes’ investment story didn’t end in the 1920 currency wipeout. The market almost broke him, but it also rebuilt him into a historically great investor because of that reckoning. He learned to stop trying to predict short-term psychology and leaned instead on company value. Later, his portfolio delivered about 16% annually for over two decades, outperforming the market with clarity instead of hubris.
There’s a lesson here for all of us: Expertise doesn't always transfer, and overconfidence can blindside even the best of us. You don't need to have all the answers. You just need to know which questions your confidence is avoiding.
You are allowed to be smart and still use guardrails. You can love reinvention and still respect boundaries. You can build freedom and still learn from other people’s missteps so you don’t have to live them.
When investing, confidence gets you started. Clarity and a bias-aware process keep you going—and winning.
p.s. This issue is the fourth in my Mind over Money series on investment psychology. If you missed the previous issues, you can read them using the links below: