Have you ever been so sure you were right about something that you went online or did research to find others that shared your point of view?
Most of us would initially scoff at that notion, since that type of narrow-minded thinking isn’t a characteristic we’d want to identify with or have others think about us.
But after our emotions cool, most of us can see some elements of this mentality in our everyday behavior.
We gravitate toward the written and visual media that agree with our viewpoints.
We often entrench our opinions when only getting a good glimpse and understanding of one side of an issue.
These feelings get amplified in situations where we desire certain outcomes, have strong emotional feelings around the issue and/or have deeply-rooted beliefs about the issue.
Our feelings about our investment portfolio check all three of those boxes.
We lose our objectivity when we want something to turn out a certain way and even more when we believe that it will turn out that way.
We then resist empirical evidence that is contrary to our desires and beliefs.
Seeking out information that only affirms our viewpoints and interpretations is known as having a confirmation bias. This willful blindness to the facts at hand will only serve to corrupt prudent, forward-thinking decision-making.
Even sophisticated investors need to be wary of avoiding confirmation bias as they gather information, interpret results and craft an ongoing investment strategy.
Oftentimes, this is easier said than done.
Sophisticated investors research and compare alternatives prior to putting out their money. Those viewpoints are forged upon the research conducted and each investor’s interpretation of that data.
The time and resources devoted to that process demand that we show results for what we’ve invested of ourselves. Failing to realize the results we thought we’d experience can then reflect back upon us and our own self-worth.
That is a very uncomfortable realization for most of us, so we’d prefer not to face hard truths if at all possible. Instead, it’s easier to find others that still agree with our viewpoint than to acknowledge that our current strategy isn’t working.
If things continue to spiral downward, the temptation will be to look back at and defend why that investment strategy made sense at the time rather than to look forward to what should now be done.
The best way to overcome these biases is through objectivity.
Even the sharpest investment minds get blinded by their own logic and pride.
Separate your investment plan from your emotions, and you’ll make better decisions that will yield better outcomes.
In nearly all of the newspaper articles I have ever written, I include this line: “Consult a qualified tax and investment advisor for how the advice in this article pertains to you.” A key aspect of that phrase is to seek out how these new thoughts I share might be of benefit to you in your situation.
In other words, I want you to collaborate with other experts on how to apply that information to your situation and gain objectivity.
Working with a qualified tax and investment advisor brings that objectivity.
Financial news and publications can inform about general developments, but they’ll never give you customized advice for the specific choices you have before you.
No matter what level of knowledge or sophistication you have as an individual investor, you’ll only ever have one point of view: your own.
The value of having a second set of eyes to assist you in your decision-making cannot be overstated.
Objectivity will help you overcome your biases, and you’ll be right more often.