The Boxer
The fabulous singer/songwriter Paul Simon wrote a song called “The Boxer”. Those of you who fancy yourselves as music aficionados will instantly know the catchy tune and poignant lyrics of this ode, written in 1968. A story about a kid from the Bronx setting out to make it on the music scene in New York City, it tells Simon’s own story. My favorite line from this song: “Still, a man hears what he wants to hear and disregards the rest.” Think about those words for a moment. Do you ever “hear what you want to hear, and ignore the rest”? If you do this (and we all do this to some extent), you selectively demonstrate “Confirmation Bias”.
Confirmation bias occurs with respect to investments. Behavioral Finance experts are puzzled when investors seek only information that confirms existing opinions or ignore information that contradicts their beliefs. Either ignoring critical information or hearing one side of the story will only lead to bad decision-making. Yet we continue to suffer from this weakness.
An example: many investors have a desire to invest in companies based in the United States. Despite ample factual data indicating that global diversification may lead to better performance or reduced risk over time (and in some cases BOTH), “home bias” will drive their choice to overlook foreign investments. Result: less return or more risk.
More recently, many investors avoided committing money to new investments because of a fear of the election results. Stories about the negative “Trump effect” were all over the popular Wall Street media. One firm was even so bold as to predict a 10% market decline. Welllllll, it has not worked out quite like that.
Don’t fall prey to confirmation bias. Seek out differing opinions and review conflicting advice. Be OBJECTIVE with these inputs, not emotional. Your outcome will improve.
“In the clearing stands a boxer and a fighter by his trade” is the first line of the last verse of Paul Simon’s song. Some more fun history: forty years ago today the Original “Rocky” movie was released. Sylvester Stallone made his fortune on this Oscar winning tale of a Philadelphia boxer, who was more of a fighter than a boxer. Yesterday’s Philadelphia Marathon ran right past the Rocky statue at the base of the Art Museum steps. Remember that great scene??
Happy Thanksgiving!
Ralph McDevitt
Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.
