Remember the costs of information acquisition

When thinking about how to invest your portfolio additional information is not necessarily a good thing as this illustrates:
Seen at Mhalanobis:

A paper by Guiso and Jappelli looked at Information Acquisition and Portfolio Performance. They develop a theoretical model that shows how an overconfident investor is actually made worse off, because they overestimate the precision of their signal. The really interesting part of their paper is a novel set of survey data from an Italian bank that shows people who are confident are generally worse investors than those who are ignorant. Investors experienced a lower Sharpe ratio the more they invest in investment information. It seems people use information to rationalize risk taking that is not commensurate with greater returns; a simple strategy of basic naïve asset allocation dominates the average active investor.