Most investment blunders occur due to confirmatory bias.

Confirmatory bias is the single most important reason why a person should have an advisor.

To understand this bias, ask yourself the question,
” What is it that we like?” The answer is, “we like the people who agree with us the most.”

Who do we like to have meetings with? The people with the ideas closest to our own. Why?

Because it makes us feel warm and fuzzy as human beings to have our own ideas repeated back to us and at the end of the meeting we can all leave agreeing that we are all very smart.

This is a lousy way of testing a view.

Instead, we should sit down with the people who disagree with us most. Not so that we will change our minds, because the odds of changing one’s mind through a simple conversation are about a million to one, but rather because we can hear the opposite side of the argument.

If we can ‘t find the logical flaw in the argument, we have no business holding our view as strongly as we probably do.

In the area of ‘equity’ investing this bias rears its ugly head time and again. Most people love to curse the markets and agree with each other that markets are probably the most dangerous thing to associate with.

This gets further validated with Media screaming ‘about risks” from the roof top. Hearing the media confirm with their inner feeling makes them believe they are scholarly and obviously right.

Another similar belief that can hurt investors is their fondness for LIC and Real Estate. Again hearing the financially uneducated people express the same thing turns people into self styled money managers.

This view when endorsed by parents, uncles, cousins, friends etc, all of whom equally uneducated leaves them with a sense of sublime satisfaction.

Thus confirmatory bias is without doubt the investor’s single biggest enemy having capacity to destroy the future wellbeing of a generation.

Instead, it would do good if only a person chose to listen to the opposite non confirmatory view and mull over it dispassionately.

But then human beings are emotional animals whose ‘hearts’ from the ground floor rule their ‘brains’ sitting on the ‘top’ floor.

I therefore believe that a person needs a financial advisor mainly because the financial advisor looks at his wealth through a perfectly ‘dispassionate’ lens having no traces of emotional bias clinging on to it.

As one friend, Mr Basu, put it very succinctly, “you need an advisor because he is not you”

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