I was listening to a webinar earlier this week hosted by Ric Edelman with Matt Hougan as the guest. They were discussing the various ways one could invest in cryptocurrencies and some of the differences among offerings. I found it to be quite informational – it’s one of the only webinars I have stayed on from start to finish.
Toward the end of the webinar, a question was asked what they thought about Warren Buffett’s comments about Bitcoin. Buffett has been quite negative on Bitcoin and cryptocurrencies for years. He has said they have “no value”, are “rat poison squared” and “will come to a bad ending”.
Ric & Matt have a very different outlook on the future of Bitcoin – a very positive outlook. So how did they respond to this question about Buffett’s comments? By sharing how wrong Buffett has been in the past, such as missing out on Apple for years because he didn’t understand the technology…just like he doesn’t understand cryptocurrencies.
All Hail The Confirmation Bias
As they brought up his prior aversion to buying technology stocks, I thought to myself, “yeah, this is the guy who sold off airlines at their low last year.” And then I stopped myself.
I realized we were bringing up evidences of mistakes without also providing evidences of all the profitable decisions he has made over the decades. He avoided much of the tech bubble burst. He bought Goldman near the low of the financial crisis. And he has made many wise investment decisions. But focusing on all his wins doesn’t support the narrative.
And that is the confirmation bias. We will seek out information that confirms our views or hopes. And we will discount, ignore or not consider evidence that may cause us to question our views. It is unconscious and if we don’t take time to step back, can fuel our overconfidence.
So What Do We Do?
Whenever making a decision or forming an opinion, it is helpful to consider contradictory arguments. This is incredibly difficult to do in real life because we often value being right more than getting it right. Our egos are sensitive! But when someone respectable has differing opinions, it is important we attempt to understand their perspective.
Perhaps the three most humbling yet powerful words an investor can utter are: “I don’t know.” Isn’t that the truth? Recognizing we may have strong opinions and desires for what the future may look like, does not mean we know what what will happen. A sense of humility can check our overconfidence and ensure we don’t take more risk than we can handle. Whatever happens in the future, rest assured, will all seem obvious in hindsight. We will wonder how we missed it.