Fantastic article from Mindful magazine this morning about combatting confirmation bias.
As a reminder, confirmation bias is where you first develop a thesis ("I'm bullish.") and then you look for evidence to support this opinion. You assign greater weight to evidence that supports your stance, and you minimize the importance of items that oppose your opinion.
Strategies to eliminate confirmation bias range from the more straightforward (gather all the evidence first, then make an informed investment decision) to the more esoteric (look at charts with the tickers covered up).
The more you look at stocks and charts, the more difficult you will find it to avoid having at least some sort of base opinion before you really dig into your research. The goal here isn't to start with the process with zero preconceived notions, but rather to make sure that your starting point doesn't affect your ability to evaluate all of the evidence openly and fairly.
““AS YOU PRACTICE MINDFULNESS YOU’LL FIND THAT YOUR POINT OF VIEW NATURALLY BROADENS.””
I love how they related confirmation bias to mindfulness. Practicing mindfulness (through meditation, yoga, etc.) brings a refreshing awareness to communication. You'll find you're able to be a more active listener, feeling greater empathy towards others, especially those with different points of view.
I started a mindfulness practice a couple years ago, and have found it to profoundly change my perspective on life. Issues that seem to be a pretty big deal don't seem so big. Challenges that felt overwhelming seem surmountable. In general, life makes more sense.
This also reminds me of Stephen Covey's fifth habit: seek first to understand, then to be understood. To rephrase... when another person is talking, don't use that time to think about what you want to say next. Focus on what they are saying, and how that relates to your own point of view.
By practicing mindful investing, you'll find that confirmation bias has less of a negative impact on your analysis, your interactions with others, and your life.
RR#6,
Dave
Disclaimer: This blog is for educational purposes only, and should not be construed as financial advice. Please see the Disclaimer page for full details.