Wednesday, December 2, 2015

Confirmation Bias

None of us likes to be wrong. It’s human nature and certainly the nature of investment “aftercasting.” Friends and colleagues who are active in planning their investments may well have cornered you with a glass in hand and related their brilliant investment choices.  The worst ones lie dormant. I am still hearing about the Microsoft investment from the early 1990’s that paid for college. The best part of that decision was that the tuition bills were paid (i.e. sale was forced) before Microsoft went into a ten year slumber. I had a client who called his swimming pool, the pool that Sun Microsystems built. His wisdom lay more in when he wanted the pool than when he wanted to sell.  Sun’s stock price crashed and burned in the early 2000’s.

 The truth is that we see what we want to see and often only that. If one is a conservative, Fox news confirms our views. If liberal, Rachel Maddow of MSNBC gives every reason to confirm what we already knew.

 Reading a recent edition of Barron’s, the weekly investment newspaper, I was struck by the statement given in the opening opinion column that, “the Dow industrials, Standard & Poors 500 index and Nasdaq finished the week less than 3% from their record highs, set earlier this year.” As I write this the Nasdaq 100 is less that 2% below its record high set in March of 2000, a mere fifteen years ago. The S&P 500 is a lofty 1.3% higher than it was fifty-two weeks ago. Neither a loss of 2% in a decade and a half or a gain of less than 2% in a year strikes me as the stuff of breathless reportage.

During years in the commodities business I had ample opportunity to listen to what customers, competitors and reporters had to say about markets. People “talk their book.” They will say whatever will further their own purpose whether it is to get you to buy a newspaper or an investment. Listen carefully to what is said and not said. Even your own beliefs require harsh observation and context.