My name is Robert Koch and I suffer from a chronic case of Dunning–Kruger. For the unfamiliar, this is a famous psychological phenomenon where people over-estimate their abilities at something. For most of my life, this has happened whenever I learn about a new skill or ability. I get excited about something, envision myself doing spectacular at it, and then fail miserably.
Today’s article shares several examples. Read these to avoid my mistakes. You’ll save yourself a lot of frustration and wasted time.
The Seductive Allure Of “Magic Math”
How would you like to make $1,200 per day, on autopilot? It’s easy once you know what to do.
Go find a (or make) a product netting you $50 per sale. Then study basic copywriting and write a sales letter converting at 2.4%. Now put 1,000 people in front of your ad each day. 50 x 24 = $1,200. That’s more than most doctors make!
You’ve probably seen advice like this before.
This is very motivating (a good thing!) and useful for changing your perception about money (another plus!). However, it’s generally a gross oversimplification of how things work. Concepts like 100 true fans, X sales on autopilot, and compounding returns are all easy to understand but hard to master. It’s a bit like saying professional NBA players make millions bouncing a rubber ball on the floor. Technically true, but there’s more beneath the surface.
Going from Dunning–Kruger effect to reality is a major letdown and it’s easy to get angry or emotional about this. A lot of people end up permanently burned out and bitter, which isn’t a healthy mindset either.
My suggestion, and this was learned the hard way, is to go into a new venture expecting the biggest and best claims to be extreme results. Then set a more realistic goal for yourself and anchor it to reality. You might not make $1,000 per day copywriting (or even $100 per day), but you can certainly earn enough each month to cover small bills or pick up a dinner tab.
And that’s a pretty good starting goal.
To paraphrase Arnold Schwarzenegger’s famous workout advice for beginners: “There is no hurry. You’ve gone your whole life without it, so now just slowly start.”
Setting and achieving realistic goals might not sound sexy, but it is a lot more fun and exciting than setting yourself up for a major disappointment.
“If Everybody Knows It, It’s Not An Advantage”
Have you ever read one of those investing books that says all hedge fund managers and Wall Street types are big dumb idiots who don’t know a thing about investing. They’re off making mistakes and losing money while smart, everyday people (exactly like you) are getting rich through the power of buy-and-hold index fund investing.
This situation always makes you feel like nobody in a professional industry (be it investing or bodybuilding) has ever bothered spending two days reading through the most popular books in their field.
It also makes you feel like you’ve just uncovered powerful, secret information that’s completely unknown to the entire world.
Realistically speaking, if it’s in a mainstream book or easily found on YouTube; it’s common advice.
While something may be new to you, there’s a good chance that it is already well-known to millions of others. As such, you don’t actually have a huge informational advantage or secret knowledge on a subject. You do, however, have a good starting point to work from and a generally effective framework to employ.
Never Underestimate The Power Of Reputation And Compounding
A lot of your large successes come from repeat effort over a period of time. This is due to compounding returns, who you know, and how effectively you can leverage your talents. Many industries are almost entirely based on reputation or previous efforts.
Real estate is an obvious example of this, with veteran buyers getting special deals or exclusive financing. But even projects like affiliate marketing or online business utilize repetition and previous expertise. The longer you do sales, the more opportunities you uncover. And many affiliate programs have prerequisites before you can jump into them.
In many situations, you have to stick around a while before you’ll see results.
This sucks when you start out. You can go months, or even years, without much progress. Increasing your passive income by $1,200 per year doesn’t sound like much. Until you do it for 10 years. Building a website that nets $500 a month is disappointing when comparing yourself high-level marketers and eCommerce brands. And then you realize you’re still up an extra $6,000 per year.
Same goes for working out, paying piano, or doing just about any skill.
The starting point is where you have the least gains, lowest self-esteem (once that initial Dunning-Kruger effect wears off), and get the most criticism (friends and family always seem to have some complaint or catty remark). But if you stick with it for at least a year, you’ll see massive progress.
How To Avoid Dunning–Kruger Effect In Your Own Life
It’s easy to talk yourself into just about anything. The more you think about something, the easier it is to persuade yourself into doing it. Personally, I constantly have to restrain myself from reading sites like Seeking Alpha or watching Biz-Op YouTube channels. An hour of either and I’ll have 20+ “sure things” worth investing time and money into.
That said, you also don’t want to be the big brained intellect who talks themselves out of every opportunity they see. There are many smart people who over-think situations, calculate the odds, and then convince themselves that anything new is impossible.
Like much of life, moderation is key.
There’s nothing wrong with jumping into new activities or trying something new. But you need to set up realistic expectations and minimize your starting risk. If you want to learn finance, start with index investing or blue chip stocks. Don’t go straight for the $9,997 “Day Trader Academy.” You’ll learn the basics and get comfortable with how things actually work, instead of getting suckered into magic math and 1% returns compounded daily.
Business is the same. There are a lot of great, low-cost ventures to begin with. And you can always jump into paid traffic or complex strategies once you’re more experienced.
Books, newsletters, YouTube, and social media are all great. But they’re no substitute for hands-on learning.
Start with something reasonable and build from there.