Town Builders

Block 17: Hindsight Bias

The second bias is hindsight bias, also known as the “Hindsight is 20/20” Bias. Looking back, we all could have been zillionaires if we only invested in Amazon and Netflix at their IPOs and held them until now. But of course, hindsight is 20/20. Could you have foreseen Netflix’s digital transformation or Amazon’s cloud services and Prime offerings? No, it would have been impossible. So don’t dwell on the fact that you missed out on those spectacular gains; look around you and find the “next” Amazon-like investment. There is no use dwelling on the past and wishing you could go back; use that energy instead to find the next great companies. They are out there…

 

Also, a lot of people fall prey to the hindsight bias when the market crashes. They say, “I knew I should’ve taken all my money out!” Well, if they actually knew, they would’ve done it! All we can do is make decisions with the current information we have. If your analysis tells you that the rise in the market is likely unsustainable and you sell, you have to live with the decision. You may have made the right decision but the outcome could have worked against you. Such is life. Oh well. We look to the future…