Confirmation bias is a type of cognitive bias where individuals have a tendency to look for, interpret, and remember information that supports their existing beliefs and ignore information that contradicts them. In the context of investing, this can result in an investor seeking out information that confirms their existing beliefs about a particular investment or market, while disregarding information that suggests a different outcome. This can lead to poor investment decisions as the investor is not considering all of the available information.
Examples of confirmation bias in investing include:
Focusing on news articles or research reports that support an investment decision, while disregarding articles or reports that present a different viewpoint.
Ignoring market signals that suggest a change in the direction of a particular security or market, because the investor believes their original investment thesis is still valid.
Believing that an investment that has performed well in the past will continue to perform well in the future, without considering the possibility that market conditions may have changed.
It is important for investors to be aware of confirmation bias and make an effort to seek out and consider a range of information and viewpoints when making investment decisions. This can help them to make more informed and objective investment decisions.
