[Summary]
Confirmation bias is the psychology of gathering only information that is convenient for oneself.
Confirmation bias is most likely to cause failure, not because of a lack of knowledge itself, but when a hasty decision is later justified.
In actual investment, the first step is to consciously check the opposing factors. However, we cannot overlook the fact that investment decisions tend to be biased to one side.
In this article, confirmation bias is not defined as "knowledge" but as a step to confirm before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First, distinguish based on confirmation bias.
When looking at confirmation bias, first separate what you want to judge. The information you need changes depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. Confirmation bias is not the only factor in making decisions. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Situations where confirmation bias can lead to failure
If we look at confirmation bias as a pattern of failure, we first need to make narrow assumptions. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
If you check the following points, things will be much more organized.
| Axis to check | What to see with confirmation bias |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
Confirmation bias doesn't only trip you up when you lack knowledge. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Don't decide to buy or sell the moment you see confirmation bias.
- Don’t mix your own holding period with a time frame that suits confirmation bias.
- Don't increase your position to recoup your losses
- Don't make a decision just based on SNS or rankings.
The important thing here is not to settle on a single correct answer based solely on confirmation bias. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using confirmation bias as an actual decision-making factor, check at least these five things.
- Can you explain in one sentence the purpose of looking at confirmation bias?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of checking for confirmation bias is not to act faster, but to reduce unnecessary errors in judgment.
Summary
Confirmation bias is a material for organizing investment decisions. Even if you read it as a failure pattern, treating it as a standalone buy/sell signal will lead to poor judgment.
The points to keep in mind are as follows.
- Decide the purpose of looking at confirmation bias first
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. It is realistic to treat confirmation bias as a tool to pause before buying or selling, rather than as a word to rush into judgment.