Basically pathological altruism is the idea that somebody does something because they think it helps but it really hurts. An example is giving a child a piece of candy. It seems like good thing to do but what happens if a hundred people give that child candy? Another example: feeding a wild animal so that the animal returns for another easy meal and becomes a threat.
Of course, the problem extends beyond single individuals. Groups or entire classes can be hurt by actions that seem good on the surface. A free lunch is never free.
For investments, pathological altruism may lead to bubbles and other mis-investments. If the thinking is that everyone would be helped by going to college or owning a house, the result is that colleges and homes becomes expensive, then subsidized and then very expensive. A classic bubble is formed. The Fannie Mae and Freddie Mac loans promoted housing loans for those unable to meet prevailing lending standards. As a result many of those who got the loans ended up losing their home, money, and wrecking their credit rating. The idea of "pathological altruism" is that bad consequences do happen and can be foreseen.
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