Hindsight Bias Exemplified

I find Legg Mason Q2 2008 letter very interesting, especially from the hindsight bias perspective.

Bill Miller has noted that many people has stated the obvious (i.e. he should have avoided housing stocks, financial stocks etc and he should have stocked up oil companies) from the events that have passed, but nobody is able to state what is obvious NOW. This implies that most (if not all) people suffers from hindsight bias. We emphasize/over-stress on what should have been.

You may also find the letter interesting too.

Comments

musicwhiz said…
Hi thinknotleft,

A short but interesting post which you made. With the bear market more or less in full swing, a lot of people are coming up with "hindsight theories" on what one should have purchased or sold in the last 6 months, which I find rather ridiculous. If one can be so all-seeing, why not act on your convictions 6 months back instead of lamenting about it now ?

Hindsight bias is the most powerful form of bias in the stock market and causes people to think they could have done much better than they actually did ! As you mentioned, it's the NOW that's important rather than glancing back at the past all the time.

Most importantly, we should buy a business we are confident will grow and in an industry which can sustain it for many years to come.

Cheers,
Musicwhiz

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