Have you noticed since the recent banking failures that the media is full of experts who claim to have seen it coming?
You might wonder where all these people were beforehand! This tendency of being wise after the fact is called ‘hindsight bias’ and is all too common in the world of investing.
More information is typically available after an event. It’s easy to forget that this information wasn’t available beforehand and that it would have been very difficult to predict an event’s outcome.
The problem with hindsight bias is that it can make people believe they could have predicted an unpredictable event’s outcome, leading to overconfidence and costly mistakes.
It’s easy to look back and see why Amazon and Alphabet (then known as Google) were great investments, but identifying the next big opportunity is much harder.
Don’t fall victim to the dangers of hindsight bias in investing. Stay informed and approach investment decisions with an objective mindset.