Confirmation Bias in Investing: How We Only Listen, See, and Believe What We Want to Believe

In investment decisions, our biggest enemy is often not the market, but our own brain. The human brain has evolved a series of mental "shortcuts" to save energy, but in complex and volatile financial markets, these shortcuts often become traps. Among them, one of the most deceptive and widespread cognitive biases is "Confirmation Bias."

Today, we'll explore this psychological trap in depth and learn how to consciously combat it to make more objective and rational analyses.

1. What is Confirmation Bias?

Simply put, confirmation bias is our tendency to search for, interpret, and remember information that confirms our existing beliefs or hypotheses, while ignoring or underestimating information that contradicts our beliefs.

Here's an example: Suppose after thorough research, you believe Company A has excellent prospects and buy its stock. Afterward, you will unconsciously:

• Actively seek positive news: You'll pay more attention to news, analyst reports, and community posts that praise Company A.
• Selectively interpret information: When you see neutral news (like "Company A launches new product, market response mixed"), you're more likely to interpret it as "The new product has potential, the market just needs time to adapt."
• Ignore or rationalize negative news: When you see clearly negative news (like "Company A's main competitor launches more disruptive product"), you might tell yourself: "This is just temporary noise," "My research is deeper, they don't understand," or "This is shorts spreading rumors."

Eventually, you live in an "information cocoon" you've built yourself, feeling that all your decisions are correct, until the market provides harsh feedback.

2. Specific Manifestations of Confirmation Bias in Investing

3. How to Combat Confirmation Bias? Three Practical Strategies

Combating this innate bias is extremely difficult, but through deliberate practice, we can build a "firewall" system.

Strategy 1: Actively Seek Disagreement

This is the most effective approach. Before making any investment decision, force yourself to find at least three reasons that don't support your decision. Pay attention to analyst reports that are bearish on your stocks, read community posts with opposing views. Your goal isn't to be convinced, but to understand their logic and see if there are blind spots you haven't considered.

Strategy 2: Play Devil's Advocate

Imagine you're in court, and your task is to attack your own investment thesis. From which angles would you start? Is the valuation too high? Is the moat not as solid as it seems? Does the management team have a history of dishonesty? This mental exercise helps you break your own beliefs from within.

Strategy 3: Keep an Investment Journal and Checklist

Before buying, clearly write down your investment logic, key assumptions, and expectations. Then review regularly. When market movements don't align with your expectations, the journal can help you objectively check whether your initial logic was wrong or new variables have emerged. A standardized checklist (checking debt levels, cash flow status, management background, etc.) ensures you don't overlook key risk points even when excited.

Conclusion

Investing is a game about probabilities and odds, not about proving who's "right" or "wrong." Our goal isn't to prove how smart we are, but to make wiser decisions in an uncertain world. Acknowledging and confronting confirmation bias is a necessary path from novice to maturity.

Have you experienced moments of confirmation bias in your investments? How did you overcome it? Feel free to share your stories and experiences.

[For educational and discussion purposes only]