Investing Sins: Confirmation Bias


Without question, my short position in WMS was absolutely my worst decision (so far, I hope) in 2016. I covered yesterday morning. I had some put options as well. Huge loss.

Its a lesson for all investors: Do not take the opinions of pundits at face value. Do your own due diligence.

Second, the company had been viewed by many as a sinking ship because of a failure to file a revised 10k last year. However, I chose to ignore their preliminary estimates of earnings restatements. They were minimal charges and yet I still deluded myself that other shoes were ready to drop.

Beware confirmation bias. There is a huge tendency to form an opinion on a company and then seek to find ways to justify that belief. It is one of the biggest mistakes one can make in investing. I fell for it.

Finally, the other bias I am learning to filter is authority bias. Just because George Soros took a position in Barrick Gold in his last filing doesn’t necessarily mean I should rush out and buy gold. If Icahn says he’s going 140% short, that doesn’t mean he’s right.

Caveat emptor.

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