What Is Hubris?

What Is Hubris?

Let me explain hubris to you directly: it's that excessive confidence or arrogance that makes someone think they can do no wrong. This overwhelming pride is often seen as a character flaw.

In the financial world, hubris is a dangerous trait that pushes investment professionals to take risks beyond what's suitable for their situation. Sure, these risks might pay off sometimes, but if you show this behavioral flaw, your gains can quickly turn into dramatic losses.

Hubris leads to short-sighted, irrational, or harmful behavior because you don't pause to examine your actions or consider how they affect others. It often ends in humiliation for the person on the receiving end.

How Hubris Works

When you're aiming for success, most people use a thoughtful process of planning and execution. But if hubris affects you, you'll jump into situations without questioning your methods. This lack of proper processing and planning often leads to failure.

Hubris can develop after you've had a period of success. Corporate executives and traders overcome by hubris can become liabilities for their firms. You might start making business decisions without fully thinking through the consequences, or as a trader, begin taking on excessive risk. In many cases, people like this bring about their own downfall.

CEOs and very successful business people overwhelmed by hubris are tough to work with in teams. They can't consider others' opinions if they conflict with their own, because they believe they always know best.

Bad for Investing

Investors and traders can experience hubris with damaging effects. Many investors are overconfident and think they know better than experts or the market itself. Just because you're well-educated or clever doesn't mean you won't benefit from good, independent advice. It also doesn't mean you can outsmart the pros or the complex market system. Plenty of investors have lost fortunes by convincing themselves they were better than everyone else.

Hubris shows up as overconfidence in the quality of your information and your perceived skill to act at the right time for maximum gain. Studies indicate that overconfident traders trade more frequently and fail to diversify their portfolios properly.

One study looked at trades from 10,000 clients at a discount brokerage. It aimed to see if frequent trading led to higher returns. After excluding tax-loss trades and those for liquidity, the purchased stocks underperformed the sold ones by 5% over one year and 8.6% over two years. Essentially, the more active the retail investor, the less money they make.

This study has been repeated in multiple markets with the same results. The authors concluded that traders are basically paying fees to lose money.

Hubris vs. Self-Confidence

It's essential to differentiate hubris from confidence. A realistic amount of confidence is crucial for long-term success, while hubris can be detrimental.

Hubris and self-confidence might seem similar, but they're quite different. Everyone with hubris has self-confidence, but not everyone with self-confidence has hubris.

The key difference is that those with hubris are arrogant. They believe they can't fail because they're too skilled or lucky. Those with self-confidence believe in their skills or luck, but it's backed by evidence. They're not blind to risks or adversity like hubristic people are.

People with self-confidence often show humility, which those with hubris lack. Humility keeps arrogance in check and gives a clearer view of your skills, successes, and failures, unlike the blinders hubris puts on.

Special Considerations

You need to overcome hubris in yourself to avoid damaging professional relationships. Seek out knowledge like books and self-help guides to help with this.

Reform your thought patterns by considering the consequences hubris causes to others—this is an effective way to start positive changes. Quell hubris by giving praise and credit properly in group settings.

Stay self-aware during success. Remember that current accomplishments don't guarantee no future hardships.

Examples of Hubris in Literature

Hubris appears everywhere, but literature exemplifies it well. In Mary Shelley’s Frankenstein, Victor's hubris shows in his quest to be an unrivaled scientist, leading to catastrophe.

In Jane Austen's Pride and Prejudice, Mr. Darcy's excessive pride in his status and himself causes him to judge Elizabeth unfairly, nearly losing her. Only after self-transformation does he overcome his hubris and win her heart.

Outside fiction, brilliant academics in finance can be deluded by their stature into thinking the real world is easy. Some succeed, but others face a rude awakening. Oddly, a Ph.D. in finance might lead you wrong, while someone with just a high school diploma could have great market intuition and make a fortune.

Examples of Hubris in Investing

A famous example is Nick Leeson, head derivatives trader for Barings Bank in Singapore. He was assigned arbitrage trades and, due to past success, got a powerful position without oversight.

Arbitrage requires betting on both sides to hedge losses, but Nick thought he knew everything, so he bet only on one side, exposing himself to huge losses. When they hit, he was arrested, and Barings Bank went bankrupt.

On a larger scale, Enron believed they could fool investors and regulators with sophisticated accounting. When exposed, their stock dropped from over $90 to just over $0.25.

What Is the Difference Between Arrogance and Hubris?

The two are closely related and synonymous. Arrogance is excessive pride about being better than others, while hubris is extreme self-belief in your abilities, not necessarily involving others.

What Is Hubris in a Person?

Hubris is excessive pride or self-confidence, most common in people who think they can do tasks they're not skilled for. It overlaps with arrogance but focuses more on extreme confidence in abilities.

What Is an Example of Hubris?

Examples include a CEO thinking they can't fail after one success, a lawyer who believes they can't lose a case, or a doctor ignoring patients because they know everything. In mythology, Icarus flew too close to the sun, his wings melted, and he fell.

Is Hubris Positive or Negative?

Hubris is negative. Those with it are seen as extremely arrogant and out of touch.

Who Was Hubris in Greek Mythology?

Hubris wasn't a person's name but 'Hybris,' the Greek goddess personifying insolence, hubris, violence, reckless pride, and arrogance.

The Bottom Line

Hubris isn't useful. Many powerful people think past successes mean they can't fail, but this mindset almost always leads to downfall. You can trace it through history in business and politics leaders.