GO
Loading...

Investors should avoid this trap: 'Freakonomics' author

Investors tend to get overconfident about the market, but no one is really good at predicting the future—including the experts, "Freakonomics" co-author Stephen Dubner told CNBC's "Closing Bell" Tuesday.

"We tend to believe more in ourselves than we should," he said. "We all think that we can do better than average and that can be a trap. You gotta play it smart, you gotta lean to the index when you feel you need to and then depend on really smart guys … if they are indeed much smarter."

It's not the first time Dubner has warned about stock-picking advice. Last month on CNBC Europe, he said, "If you look at stock-picking advice, you find that the experts … are generally about as good as monkey with a dartboard."

Read More'Freakonomics' authors blast stock pickers

Stephen Dubner speaks at the World Business Forum in New York last year.
Peter Foley | Bloomberg | Getty Images
Stephen Dubner speaks at the World Business Forum in New York last year.

Investor Kevin O'Leary of "Shark Tank" fame said if that holds true, then the only "free lunch" in investing is diversification.

"If it's true we don't know what's going to happen next, that forces you into a place where you also invest in fixed income and you have equities and you have tremendous diversification because monkey no monkey because the only think you can trust in life is cash," O'Leary said.

"So I say give me things that produce cash every month," he added, like bonds with yield and stocks with dividends.

Read MoreTechnician: Do not buy stocks right now

—By CNBC's Michelle Fox

Latest Special Reports

  • Alibaba Group headquarters in Hangzhou, China

    In-depth coverage on Alibaba's IPO, including roadshow coverage, expert analysis, and Alibaba's stock price.

  • With more than 1,600 ETFs now on the market, learn more about how advisors and investors are profiting from the ETF boom.

  • Unlock the keys to building a successful long-term financial plan: manage your money, grow your money, and protect it.

Investing