Clinging to False Beliefs Can Be Dangerous to One’s Portfolio

Half of the Facts You Know Are Probably Wrong

Excerpt (emphasis added):

People also cling to selected “facts” as a way to justify their beliefs about how the world works. Arbesman notes, “We persist in only adding facts to our personal store of knowledge that jibe with what we already know, rather than assimilate new facts irrespective of how they fit into our worldview.” All too true; confirmation bias is everywhere.

So is there anything we can do to keep up to date with changing facts (other than constantly reading Reason)? Arbesman suggests that simply knowing that our factual knowledge bases have a half-life should keep us humble and always seeking new information. Well, hope springs eternal. More daringly, Arbesman suggests, “Stop memorizing things and just give up. Our individual memories can be outsourced to the cloud.” Through the Internet, we can “search for any fact we need any time.” Really? The Web is great for finding a list of the ten biggest cities in the United States, but if the scientific literature is merely littered with wrong facts, then cyberspace is an enticing quagmire of falsehoods, propaganda, and just plain bunkum. There simply is no substitute for skepticism.

Investors, like good scientists, must learn to question everything and accept nothing at face value.  Good investors think on their own, question, re-question, inquire seriously about negative outcomes, and make their own conclusions.

Too many know so much that isn’t so.  Others don’t want to do the necessary work, especially if it challenges a cherished belief.

And some are too easily impressed by someone else.  Just because something is in writing doesn’t make it true.  Just because someone is successful or have knowledge in one area does not automatically translate to success or knowledge in another area.  Just because someone has a pedigree (such as a degree from an allegedly prestigious school, or a certain designation, or a certain position, or has money) does not automatically mean they should receive deference.

Recognizing behavioral biases and acknowledging that nothing is certain will help investors achieve their goals far better than clinging to false beliefs.

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