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Beginner4 min readInvestor Psychology · 5/5

Confirmation Bias: Why Do You Believe What Confirms Your View?

As soon as you buy a stock, you may find yourself looking for good news about it and remembering it well, while skimming past the bad news. That is called confirmation bias, and it happens to almost all of us, especially when we have money riding on it.

What you will learn

  • Understand how the mind filters information in favour of its own view.
  • See with an example how the same news can be read two ways.
  • Learn simple steps to look for the other side on purpose.
In this lesson
  1. The mind looks for what reassures it
  2. Same news, two readings
  3. How to look for the other side
  4. Check yourself
  5. Summary
  6. Related terms

The mind looks for what reassures it

When you hold a view, especially one you have put money into, the mind likes to hear that it is right. So it does two things without you noticing: it searches for information that supports the view, and it reads neutral information as being on its side. Meanwhile news that challenges you seems weaker or "not important".

It gets stronger when every source you follow says the same thing. If everyone around you is excited about a stock, you will hear plenty of reasons for excitement and few reasons for concern, not because there are none, but because nobody mentions them.

Same news, two readings

What confirms your view Sales rose 12% A new contract with a large client An excited comment on social media You read it all and remember it
What challenges it Debt rose 40% The profit margin shrank You skim past it
News about an invented company. Both columns are facts, but only one gets noticed.
ExampleYou bought shares in an invented company and read 5 news items about it in a week. Sales rose 12%, there was a new contract and an excited comment: 3 items that pleased you. Debt also rose 40% and the profit margin shrank: 2 items you skimmed past. If someone asked you a week later how the company is doing, you would probably say "very well", even though the full picture holds both.

This does not mean the negative news matters more than the positive, or that the company is bad. The debt may have grown to fund a well-planned expansion. The point is to see both columns and weigh them, instead of letting one of them vanish from your thinking.

Watch outComments and opinions are not the same as the source itself. Read the official disclosure or the financial statements yourself, because whoever summarises them for you may carry the same bias.

How to look for the other side

  1. Write down what would change your mindBefore buying, write down one or two things that would make you rethink. That sets the signs before the feeling steps in.
  2. Search for the opposite on purposeAsk: what is the strongest reason someone might not be optimistic about this stock? Then look for it in the numbers and disclosures.
  3. Write both columnsA sheet with one column for what supports your view and one for what challenges it. If a column is empty, check that you really looked for the opposing view before treating the picture as complete.

Read the source yourself

Open the company's disclosures and news, and read the item you dislike with the same attention as the one you like. FoudaLens shows the information and descriptive analysis; the decision is yours.

DisclosuresNews

Check yourself

1. You read three good and two bad news items about a stock you own. What will confirmation bias most likely make you do?

The mind gives more weight to whatever confirms its view.

2. When is the best time to decide what would change your mind?

Before buying you are still calm and not yet attached to the stock.

Summary

  • The mind seeks what confirms its view and downplays what challenges it.
  • The full picture holds both columns, even if only one caught your eye.
  • Before buying, write down what would change your mind, and look for the opposite on purpose.

Related terms

P/E ratioEPS

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Educational content only, not investment advice. Companies and figures in the examples are invented for illustration.