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The Trap of Confirmation Bias

December 28th

What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact.

Warren Buffett

As investors, we are often guilty of filtering new information through our existing convictions. This is a cognitive bias towards confirming our current beliefs, a trap that can lead us astray.

In the context of an ever-changing market, stubborn adherence to initial hypotheses or investment strategies can lead to misjudgments. Not only does this resist profitability, it also discourages personal growth and learning.

Instead, we must strive to remain flexible and open-minded in our decision-making process. As sophisticated investors, we should be objective analyzers of information, ready to revise our positions in light of new data. It's through this rigorous and open-minded analysis that informed decisions that serve our long-term investment goals are made.

When examining a new piece of information, it is crucial to question ourselves: Are we interpreting this information solely to reinforce our existing beliefs? Or are we genuinely open to changing our minds? This self-awareness is the first step towards overcoming our innate inclination to confirm rather than question our existing beliefs.

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